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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No.1

 

 

FORM 20-F/A

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34129

 

 

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. –

ELETROBRAS

(exact name of registrant as specified in its charter)

 

 

BRAZILIAN ELECTRIC POWER COMPANY

(translation of registrant's name into English)

Federative Republic of Brazil

(jurisdiction of incorporation or organization)

Avenida Presidente Vargas, 409 – 9th floor, Edifício Herm. Stoltz – Centro, CEP 20071-003, Rio de Janeiro, RJ, Brazil

(address of principal executive offices)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares, evidenced by American Depositary Receipts, each representing one Common Share   New York Stock Exchange
Common Shares, no par value*   New York Stock Exchange
American Depositary Shares, evidenced by American Depositary Receipts, each representing one Class B Preferred Share   New York Stock Exchange
Preferred Shares, no par value*   New York Stock Exchange

 

* Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

 

 

The number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2015 was:

 

  1,087,050,297   Common Shares  
  146,920   Class A Preferred Shares  
  265,436,883   Class B Preferred Shares  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ¨   Yes     x   No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     ¨   Yes     x   No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days     x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ¨   Yes     x   No

Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12-b-2 of the Exchange Act.

Large accelerated filer   x                 Accelerated filer   ¨                 Non accelerated filer   ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   ¨

   IFRS   x      Other   ¨  

Indicate by check mark which financial statement item the registrant has elected to follow.      ¨   Item 17     x   Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act.).      ¨   Yes     x   No

 

 

 


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Explanatory Note — Amendment

We are amending the annual report to include the 2015 financial statements of Energia Sustentável do Brasil Participações S.A. and Madeira Energia S.A. as they met the criteria set forth in Rule 3-09 or Regulation S-X in 2014. No further amendments have been made to the annual report other than including these financial statements.


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CONTENTS

 

         Page  

ITEM 17.

  Financial Statements      1   

ITEM 18.

  Financial Statements      1   

ITEM 19.

  Exhibits      2   


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PART III

ITEM 17. FINANCIAL STATEMENTS

See “Item 18, Financial Statements.”

ITEM 18. FINANCIAL STATEMENTS

In 2015, none of our affiliated entities was a significant subsidiary under Rule 3-09 of Regulation S-X. In 2014, Madeira Energia S.A. and Energia Sustentável do Brasil Participações S.A. constituted significant subsidiaries under Rule 3-09 of Regulation S-X and the financial statements for those entities as of December 31, 2014 and 2013 and for the year ended December 31, 2014, 2013 and 2012 were included in our annual report for 2014 on Form 20-F. Please see attached the financial statements for those entities as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013, as an amendment to the annual report for 2015 filed on October 11, 2016.

 

1


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ITEM 19. Exhibits

 

12.1

  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

12.2

  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

13.1

  Section 906 Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

13.2

  Section 906 Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

2


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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this amendment to its annual report on its behalf.

 

   

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. –

ELETROBRAS

October 21, 2016     By:       /s/ Wilson Pinto Ferreira Junior                    
      Name: Wilson Pinto Ferreira Junior
      Title:   Chief Executive Officer
    By:   /s/ Armando Casado de Araújo                    
      Name: Armando Casado de Araújo
      Title:   Chief Financial and Investor Relations Officer

 

3


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CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Contents

 

ESBR Participações S.A.

  

Report of Independent Registered Public Accounting Firm of ESBR Participações S.A. for the year ended December 31, 2014

     F-2   

Consolidated balance sheets as of December 31, 2015 and 2014

     F-4   

Consolidated statements of profit and loss for the years ended December 2015, 2014 and 2013

     F-6   

Consolidated statements of comprehensive loss for the years ended December 31, 2015, 2014 and 2013

     F-7   

Consolidated statements of changes in equity for the years ended December 31, 2015, 2014 and 2013

     F-8   

Consolidated statements of cash flows for the years ended December  31, 2015, 2014 and 2013

     F-9   

Notes to the consolidated financial statements for the years ending December 31, 2015, 2014 and 2013

     F-11   

Madeira Energia S.A

  

Report of Independent Registered Public Accounting Firm of Madeira Energia S.A. as of and for the years ended December 31, 2015 and 2014

     F-87   

Consolidated balance sheets as of December 31, 2015 and 2014

     F-89   

Consolidated statements of operations for the years ended December 2015, 2014 and 2013

     F-90   

Consolidated statements of comprehensive income (loss) for the years ended December 31, 2015, 2014 and 2013

     F-91   

Consolidated statements of changes in equity for the years ended December 31, 2015, 2014 and 2013

     F-92   

Consolidated statements of cash flows for the years ended December  31, 2015, 2014 and 2013

     F-93   

Notes to the consolidated financial statements for the years ending December 31, 2015, 2014 and 2013

     F-95   

 

 

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REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

ESBR Participações S.A.:

We have audited the accompanying consolidated balance sheet of ESBR Participações S.A. and subsidiary as of December 31, 2014, and the related consolidated statements of profit and loss, comprehensive loss, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ESBR Participações S.A. and subsidiary as of December 31, 2014, and the results of their operations and their cash flows for the year then ended, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The accompanying consolidated balance sheet of ESBR Participações S.A. and subsidiary as of December 31, 2015, and the related consolidated statements of profit and loss, comprehensive loss, changes in equity and cash flows for the years ended December 31, 2015 and 2013 were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

/s/ KPMG Auditores Independentes

October 10, 2016

 

F-2


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ESBR Participações

S.A. and Subsidiary

Consolidated Financial Statements at December 31, 2015 and 2014, and for each of the years in the three-year period ended December 31, 2015

Report of Independent Registered Public Accounting Firm as of and for the year ended December 31, 2014

 

F-3


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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2015 and 2014

(In thousands of Brazilian reais - R$)

 

ASSETS

   Note      12/31/2015      12/31/2014  
            (unaudited)         

CURRENT ASSETS

        

Cash and cash equivalents

     4         143.897         74.301   

Marketable Securities

     5         —           10.612   

Trade receivables

     6         380.951         151.127   

Inventories – Storeroom supplies

        2.678         139   

Prepaid expenses

     12         38.944         9.993   

Recoverable taxes

     7         326.630         233.686   

Other current assets

     9         15.470         26.803   
     

 

 

    

 

 

 

Total current assets

        908.570         506.661   
     

 

 

    

 

 

 

NONCURRENT ASSETS

        

Long-term assets:

        

Marketable Securities

     5         61.621         —     

Prepaid expenses

     12         163.432         38.227   

Recoverable taxes

     7         305.807         552.224   

Deferred taxes

     8         1.096.023         751.729   

Judicial deposits

     11         28.173         37.767   

Property, plant and equipment

     14         21.088.279         19.743.906   

Intangible assets

     15         597.279         594.838   
     

 

 

    

 

 

 

Total noncurrent assets

        23.340.614         21.718.691   
     

 

 

    

 

 

 
        

TOTAL ASSETS

        24.249.184         22.225.352   
     

 

 

    

 

 

 

(continued)

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2015 and 2014

(In thousands of Brazilian reais - R$)

 

LIABILITIES AND EQUITY

   Note      12/31/2015     12/31/2014  
            (unaudited)        

CURRENT LIABILITIES

       

Suppliers

     16         107.927        205.055   

Financing

     20         301.413        308.607   

Payroll, related taxes and accruals

        4.974        4.189   

Taxes payable

     17         18.870        38.530   

Regulatory and sector charges

     24         750.915        31.709   

Public asset use payable

     21         12.484        10.757   

Provision for environmental costs

     22         125.951        107.403   

Provision for contingencies

     23         1.977        3.721   

Insurance payable

     12         67.291        869   

Other current liabilities

     25         30.211        8.614   
     

 

 

   

 

 

 

Total current liabilities

        1.422.013        719.454   
     

 

 

   

 

 

 

NONCURRENT LIABILITIES

       

Suppliers

     16         25.929        6.638   

Financing

     20         10.998.444        11.016.142   

Public asset use payable

     21         112.034        109.674   

Advance for future capital increase (AFCI)

     26         477.691        —     

Provision for environmental costs

     22         451.584        476.519   

Provision for contingencies

     23         3.739.543        2.628.513   

Research & development

     27         2.883        —     
     

 

 

   

 

 

 

Total noncurrent liabilities

        15.808.108        14.237.486   
     

 

 

   

 

 

 

TOTAL LIABILITIES

        17.230.121        14.956.940   
     

 

 

   

 

 

 

EQUITY

       

Capital

     28.1         9.131.711        8.681.711   

Accumulated losses

        (2.112.648     (1.413.299
     

 

 

   

 

 

 
        7.019.063        7.268.412   
     

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

        24.249.184        22.225.352   
     

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF PROFIT AND LOSS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013

(In thousands of Brazilian reais - R$)

 

     Note      12/31/2015     12/31/2014     12/31/2013  
            (unaudited)           (unaudited)  

NET OPERATING REVENUE

     29         2.412.946        732.639        147.005   

Costs on power sold

     30         (2.457.414     (2.239.445     (287.427
     

 

 

   

 

 

   

 

 

 

Provision for energy contingencies and EUST

        (897.698     (1.915.094     (157.519

Power grid charges

        (520.188     (171.640     (4.806

Depreciation and amortization

        (433.313     (122.601     (4.798

Costs of transactions at CCEE

        (304.675     —          —     

Provision GSF

        (204.930     —          —     

Public asset use

        (18.016     (2.429     (36

Personnel costs

        (3.868     (4.945     (76

Other operating expenses

        (74.726     (22.736     (327

GROSS LOSS

        (44.468     (1.506.806     (140.422
     

 

 

   

 

 

   

 

 

 

Other operating income/expenses, Net

        565        2.248        —     

GENERAL AND ADMINISTRATIVE EXPENSES

     30         (331.262     (132.883     (83.401
     

 

 

   

 

 

   

 

 

 

Personnel

        (31.935     (35.212     (29.615

Management

     19         (16.750     (11.470     (9.613

Administrative costs

        (282.577     (86.201     (44.173

FINANCE INCOME (COSTS)

     31         (672.570     (174.981     (4.607
     

 

 

   

 

 

   

 

 

 

Finance income

        13.446        6.961        3.369   

Finance costs

        (686.016     (181.942     (7.976

LOSS BEFORE INCOME TAX AND SOCIAL CONTRIBUTION

        (1.047.735     (1.812.422     (228.430
     

 

 

   

 

 

   

 

 

 

Current income tax and social contribution

        (187     (22.064     —     

Deferred income tax and social contribution

        348.573        637.759        77.767   

INCOME TAX AND SOCIAL CONTRIBUTION

     8         348.386        615.695        77.767   

LOSS FOR THE YEAR

        (699.349     (1.196.727     (150.663
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013

(In thousands of Brazilian reais - R$)

 

     12/31/2015     12/31/2014     12/31/2013  
     (unaudited)           (unaudited)  

COMPREHENSIVE LOSS FOR THE YEAR

      

Loss for the year

     (699.349     (1.196.727     (150.663

Other comprehensive income (loss)

      

Cash flow hedge , which is comprised of:

     —          —          (1.954 )  

Gains in cash flow hedge in the period

     —          —          5.635   

Transfers to hedged items - property, plant and equipment

     —          —          (7.589

TOTAL COMPREHENSIVE LOSS FOR THE YEAR

     (699.349     (1.196.727     (152.617
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013

(In thousands of Brazilian reais - R$)

 

     Note      Subscribed
capital
     Unpaid
capital
    Issued
capital
     Accumulated
losses
    Total  

BALANCES AS AT DECEMBER 31, 2013 (unaudited)

        7.431.711         (295.000     7.136.711         (216.572     6.920.139   

Capital subscription

        1.700.000         (1.700.000     —           —          —     

Capital contribution

        —           1.545.000        1.545.000         —          1.545.000   

Loss for the year

        —           —          —           (1.196.727     (1.196.727
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

BALANCES AS AT DECEMBER 31, 2014

        9.131.711         (450.000     8.681.711         (1.413.299     7.268.412   

Capital contribution (unaudited)

     28.1         —           450.000        450.000         —          450.000   

Loss for the year (unaudited)

        —           —          —           (699.349     (699.349

BALANCES AS AT DECEMBER 31, 2015 (unaudited)

        9.131.711         —          9.131.711         (2.112.648     7.019.063   
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARs ENDED DECEMBER 31, 2015, 2014 and 2013 (unaudited)

(In thousands of Brazilian reais - R$)

 

     Note      12/31/2015     12/31/2014     12/31/2013  
            (unaudited)           (unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES

         

Loss for the year

        (699.349     (1.196.727     (150.663

Adjustments to reconcile net loss for the year to net cash provided by (used in) operating activities:

         

Provision for contingencies

        958.935        1.924.398        29   

Recognition (reversal of) allowance for doubtful debts

     6         17.085        (5.249     —     

Deferred income tax and social contribution

     8         (348.573     (637.759     (77.702

Current income tax and social contribution

     8         187        22.064        —     

Inflation adjustment

        (2.986     3.045        (13.638

Inflation adjustment on environmental costs

        29.020        —          —     

Accrued interest

     20         587.919        164.688        —     

Depreciation and amortization

     14 and 15         452.793        129.684        7.210   

Write-off of property, plant and equipment and Intangible assets

     12 and 13         16.216        —          —     

Gain on sale of property, plant and equipment

        —          4.674        —     

Inflation adjustment on public asset use

        15.845        15.994        6.487   

Income from short-term investments

        2.770        —          —     

Attorneys’ fees and court costs

        8.757        —          —     

GSF

        204.930        —          —     

Adjustment to the advance for future capital increase

        20.691        —          —     

Costs of transactions at CCEE

        304.675        —          —     

Unrealized earnings on foreign restricted deposits

        —          —          12.779   

Other adjustments

        4.279        7.583        —     

Changes in:

         

Accounts receivables

     6         (246.909     (58.814     (87.064

Inventories

        (2.539     (139     —     

Prepaid expenses

     12         (154.156     (37.794     (4

Judicial deposit

        12.184        (5.173     —     

Other current assets

        11.333        (16.564     (9.080

Trade payables

        (115.381     (183.072     (17.917

Payroll, related taxes and accruals

        785        1.217        634   

Suppliers

     24         209.601        31.709        —     

Insurance payment

     12         66.422        (4.281     —     

Public asset use (UBP) payment

     21         (11.758     (10.931     (3.566

Payment of environmental costs

     22         (53.832     (65.297     —     

Recoverable taxes

        (75.642     13.530        —     

Taxes payable

        305.757        125.941        18.783   

Payment of success fees

     23         (864     —          —     

Other current liabilities

        15.722        1.975        (469

Recoverable taxes - (purchase of property, plant and equipment)

        (96.093     (186.161     (188.127

Net cash provided by operating activities

        1.437.824        38.541        (502.308
     

 

 

   

 

 

   

 

 

 

(continued)

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013 (unaudited), CONTINUED

(In thousands of Brazilian reais - R$)

 

     Note      12/31/2015     12/31/2014     12/31/2013  
            (unaudited)           (unaudited)  

CASH FLOWS FROM INVESTING ACTIVITIES

         

Purchase of property, plant and equipment

        (1.241.388     (1.877.286     (2.548.400

Purchase of marketable Securities

     5         —          (10.612     —     

Proceeds from the sale of property, plant and equipment

        —          1.924        —     

Securities

     5         (53.779     (10.612     —     

Insurance payment

        —          (4.281     —     

Purchase of intangible assets

     15         (3.343     (2.188     (2.546

Net cash used in investing activities

        (1.298.510     (1.888.162     (2.550.946

CASH FLOWS FROM FINANCING ACTIVITIES

         

Capital contributions

     28.1         450.000        1.545.000        2.375.000   

Advance for future capital increase (AFCI)

     26         457.000        —          —     

Financing released

     20         160.000        700.000        668.000   

Financing paid (Principal)

     20         (244.491     (71.457     (61.224

Financing paid (interest)

     20         (892.421     (243.433     (208.247

Payment of commissions on borrowings

     20         194        (10.616     (5.758
     

 

 

   

 

 

   

 

 

 

Net cash provided (used by) by financing activities

        (69.718     1.919.494        2.767.771   

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

         

Cash and cash equivalents at the beginning of the year

     4         74.301        4.428        289.911   

Cash and cash equivalents at the end of the year

     4         143.897        74.301        4.428   
     

 

 

   

 

 

   

 

 

 

Changes in cash

        69.596        69.873        285.483   
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015 (unaudited), 2014 and 2013 (unaudited)

(In thousands of Brazilian reais - R$, unless otherwise stated)

 

1. GENERAL INFORMATION

ESBR Participações S.A. (“ESBRP” or “Company” or “Parent”) is a closely-held company, headquartered and domiciled in the City of Rio de Janeiro - RJ, at Avenida Almirante Barroso, no 52 - Sala 2.802 (Parte). ESBRP is solely engaged in holding interest in Energia Sustentável do Brasil S.A (“Subsidiary” or “ESBR”), also a closely-held company, that holds the public asset use concession to operate Jirau hydroelectric power plant.

As at December 31, 2015, the Company’s controlling shareholders were GDF Suez Energy Latin América Participações Ltda, Mizha Energia Participações S.A. (Mitsui Group), Eletrosul Centrais Elétricas S.A. and Companhia Hidro Elétrica do São Francisco - Chesf.

The Company and its subsidiary recognized recurring losses and net working capital deficit primarily because of the recognition of the provision for contingencies related to the exemption claim and provision for EUST (see more information in Note 23) that adversely impacted the Company's profit or loss and financial condition up to this date.

However, due to the contribution obligations from the shareholders of ESBR Participações S.A. to the subsidiary, which are being performed and guaranteed, as well as the compliance with requirements set forth in the financing agreement entered into with the National Bank for Economic and Social Development (BNDES) and other ronlending banks, that are also binding upon the shareholders, up to the settlement of the contractual obligations or full startup of operation of the plant, to make contributions to the subsidiary whenever necessary so as to maintain the investments for the completion of operating assets, as mentioned in Note 20, the subsidiary has guaranteed through December 2017, according to the corporate guarantee agreement entered into by shareholders, its financial resources necessary for the completion of investments in UHE Jirau, as well as for working capital maintenance, until the subsidiary achieves levels of profitability and cash generation aligned with its original business plan.

1.1. Characteristics of Jirau Project

Jirau Project comprises the construction of a hydroelectric power plant located in Madeira river, City of Porto Velho, State of Rondônia, as well as the respective installation of the transmission line whose interest is restricted to the power plant. The initial basic project of UHE Jirau, called Auction A-5/2008, originally provided for a total of 44 generation units in the plant, with minimum installed capacity of average 3,300MW*, with physical energy guarantee (guaranteed energy) of average 1,975.3 MW* after the startup of operation of the last generation unit.

 

(*) information unaudited by independent auditors

 

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The physical guarantee of the original guaranteed power of the plant (average 1,975.3 MW*) was divided as follows:

 

    70% at the Regulated Contract Environment (“ACR”), at the price of R$71.37 per MWh, related to May 2008, adjusted at the month of anniversary of the tariff adjustment of each distribution company based on the extended national consumer price index (IPCA), disclosed by the Brazilian Institute of Geography and Statistics (IBGE). As at December 31, 2015, the adjusted price per MWh is R$114.94 (R$103,10 as at December 31, 2014); and

 

    30% allocated to the sale in the Free Contract Environment (“ACL”). In 2013 no power was sold in this environment. In January and February 2014, all volumes contracted were delivered to related parties. With respect to March, April and May 2014, no sale was made to related parties, being the power settled at the Electric Power Commercialization Chamber (CCEE).

From June to December 2014, the following assumption was adopted to measure the volume of power to be delivered to the related parties: on the Physical Guarantee of Generation Units in Operation the seasonality factor of the Energy Reallocation Mechanism (MRE), internal loss factor, basic grid loss factor, availability factor and physical guarantee allocation factor are applied; all factors are estimated. After application of the abovementioned factors, the allocated power is determined. Out of this amount, the amounts of Regulated Environment Electricity Sale Agreement (CCEARs) (sold to the ACR based on the preceding item) is deducted and the remaining is sold to the related parties proportionally to their equity interest. For 2015, between January and July, the subsidiary adopted this same delivery assumption, primarily due to the physical guarantee reductions arising from the application of the GSF (Generating Scaling Factor). Under the injunction of the GSF from Apine (explained below), the subsidiary started to deliver all volumes contracted with its shareholders, which occurred from August to December 2015. See more information on the agreements entered into with related parties in Note 18.

Under SPE/MME Administrative Rule 26, of August 1, 2011, the total volume of physical energy guarantee was defined at average 209.3 MW, related to the increase in the installed capacity of UHE Jirau (equivalent to nominal 450 MW), which was sold at the Auction for Purchase of Power Arising from New Generation Projects, called Auction A-3, as set forth in MME Administrative Rule 113, of February 1, 2011. Therefore, the basic plant expansion project had 50 generation units, and the new installed capacity is 3,750 MW and the new guaranteed energy is average 2,184.6 MW.

The additional physical guarantee of 209.3 MW* was fully sold at the ACR at the price of R$102.00 per MWh related to August 2011, annualy adjusted by the IPCA.Consequently, the effective price in 2015 was R$124.09 per MWh. The effective beginning of deliverof the power under the CCEARs of Auction A-3/2011 occurred in May 2015.

On November 10, 2015, MME Ordinance nº 337 was issued by the Strategic Planning and Development Office, which granted to the subsidiary an extraordinary review of the total physical guarantee of UHE Jirau determined at average 2,205.1 MW*.

 

(*) information unaudited by independent auditors

 

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Of the total additional physical guarantee of average 20.5 MW*, average 18 MW* was fully sold at the ACR, when the subsidiary participated in and was the winning bidder of Auction A-1 for 2015, where the CCEARs will be entered into with 22 distribution companies. Agreements became effective from January 1, 2016 and goes to December 31, 2018. The sales price was R$148.00 per MWh, as at December 2015.

The subsidiary reached the guaranteed energy on July 31, 2015, based on the startup of operation of the 33 rd generation unit.

 

(*) information unaudited by independent auditors

 

  1.1.2. Concession

On August 13, 2008, the Federal Official Gazette (DOU) published that the subsidiary entered into with the federal government (Concession Grantor) over a 35-year period, through the ANEEL, Concession Arrangement 002/08 - MME UHE Jirau, which regulates the operation by the subsidiary of the potential hydraulic energy located in Madeira river, City of Porto Velho, State of Rondônia, at the coordinates of 9º19’52’’ South latitude and 64°44’04’’ West longitude, called Jirau Hydroelectric Power Plant, with minimum installed capacity of 3,300 MW, as well as the respective hydroelectric power plant restricted interest transmission facilities.

On September 17, 2012, the first addendum to the abovementioned agreement was entered into to document the expansion of UHE Jirau and redefine the project implementation schedule.

Provisional Act 579, of September 11, 2012, which addresses power generation, transmission and distribution concessions and reduction of sector charges aiming at tariff control, was changed into Law 12783 and approved by the President of Republic on January 11, 2013.

Under Law 12783/13, power concessions granted before the enactment of Concession Act (Law 8987/95) that were not subject to bid can be renewed one single time over a period of up to 30 years, provided that concessionaires agree to receive compensation only by means of tariffs to cover operating and maintenance (O&M) expenses, charges, taxes and, where applicable, transmission and distribution costs. A few sector charges will be eliminated or reduced in case of renewal of the concession.

The subsidiary’s generation assets were not directly impacted by Law 12783/13 with respect to the renewal of concessions since they were obtained by means of bid processes conducted after the enactment of Law 8987/95.

 

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  1.1.3. Environmental matters

The environmental body responsible for the project is the Brazilian Environmental and Renewable Natural Resources Institute (IBAMA).

 

    Previous License (LP): confirms the environmental feasibility of the project after Environmental Impact Study analysis and conduction of public hearings at the region. LP 251/2007 was issued on July 9, 2007.

 

    Installation Licenses (LI): authorize the beginning of work after the description of social and environmental programs. These licenses are issued after approval of the Basic Environmental Project, which describes the programs to be implemented during all project stages, including the construction, reservoir filling and plant operation. The subsidiary obtained LI 563/2008 relating to the implementation of the Pioneer Construction Site on November 14, 2008. On June 3, 2009, IBAMA issued LI 621/2009;

 

    Operating License (LO): authorizes the filling of the reservoir, the startup of the plant’s operation and the generation of power after the implementation of the social and environmental programs and satisfaction of the conditions set out in the LI. On October 19, 2012, IBAMA issued LO 1.097/2012, effective for four years counted from the issuance date, which determines the continuity of the social and environmental programs set forth in the Basic Environmental Project (PBA). The 1 st amendment to the LO was issued on November 29, 2012, so as to contemplate the 50 UGs, and the 2 nd amendment was issued on July 19, 2013, including adjustments to condition 2.32, related to the environmental compensation of UHE Jirau.

The Company accounted for future environmental costs arising from the LI and LO licenses, by recognizing in its assets (see Notes 14 and 15) and liabilities the present value of the related obligations (see Note 22).

 

  1.1.4.  Business operation

The startup of operation and respective delivery of the power volumes of the Regulated Contracted Environment (“ACR”), set forth in the 2008 invitation to bid was scheduled to take place on January 1, 2013.

On February 1, 2013, the postponement of the startup of operations of UHE Jirau was approved at the meeting of Aneel’s board of directors; consequently, the postponement of the payment of transmission costs and charges, in addition to the postponement of the scheduled beginning of supply set forth in the regulated environment electricity sale agreements (CCEARs) and respective revenue, as follows:

 

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  a) The startup of operations on May 1, 2013 was approved which, according to estimates available at the time would be the date of the startup of operations of the Transmission Line 600KV Porto Velho - Araraquara, however, in case of proven need of generation units of UHE Jirau for the commissioning of the conversion company, the two first units should be available on March 1, 2013, which has not occurred;

 

  b) The administrative proceeding in progress must be sent to the State General Attorneys’ Office (PGE) for legal analysis of the exemption claim which, through Opinion 136/2013/PGEANEEL/ PGF/AGU, acknowledged the exemption claim that would enable the postponement of the activity startup schedule of UHE Jirau. PGE explained that the impact on the construction schedule should be determined by a technical expert;

On June 4, 2013, through Ordinance 1732, Aneel decided to (i) postpone the startup of operations of the generation units and the beginning of supply of power set forth in the CCEAR of UHE Jirau, so as to match these dates to the 30-day period before the startup of operations of the Porto Velho-Araraquara Transmission Line (LT), which was then scheduled to take place on July 1, 2013 and (ii) acknowledge the 52-day delay in the implementation schedule as e caused by act from the public authorities. The transmission line has not started to operate on July 1, 2013, as scheduled, but rather on November 29, 2013.

Additionally, the subsidiary filed a request for reconsideration with Aneel’s Executive Board on June 13, 2013, claiming, among other issues: (i) the recognition, in addition to the 52 days already recognized, of 187 days of exemption calim; (ii) that the startup of operation of UHE Jirau matches the expected date for startup of operation of transmission facilities (and not the 30 days before such date); and (iii) that the approved matching is not applicable to the total implementation schedule of UHE Jirau, subject to the generation machinery implementation intervals currently set out in the prevailing schedule.

On October 22, 2013, Aneel, through Ordinance 3588, partially and preliminarily granted the exemption claim application of 239 days, to be added to every startup date of the various generation units of the schedule contained in the Concession Arrangement.

Concurrently, the subsidiary filed with the 5 th Federal Court of the Judiciary District of Porto Velho a lawsuit so that the events at the construction site of UHE Jirau in 2011 and 2012 would be recognized as exemption claim.

Currently and, as a result of the abovementioned lawsuits/administrative proceedings, three decisions are currently effective, as follows: within the administrative scope, ANEEL Ordinance 3588/2013; and, judicial scope, the decisions dated September 18, 2013 (Evidence Precautionary Action) and October 17, 2013 (Primary Action).

 

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The court rulings above determine the non-application of penalties to the Company and its subsidiary due to delay in power generation, and abstention from (i) requiring the registration of the power volumes with the Power Commercialization Chamber (CCEE) arising from the project construction schedule, as well as (ii) transmission system use tariffs.

In November 2014, the expert report was attached to the court records of the Primary Action recognizing 535 days of delay in the schedule, arising from the events in 2011 and 2012, mitigating the risk of an unfavorable outcome for the Company. The report can still be challenged by Aneel.

For further details about the updates of exemption claim will be treated in explanatory note of subsequent events (note 33).

 

2. PRESENTATION OF FINANCIAL STATEMENTS

 

  2.1. Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB"). Additionally, aspects of the specific Brazilian legislation issued by ANEEL, particularly regarding the structure of accounts and the way of recording events were considered, aiming at standardizing the practices with other companies of the electric sector.

The Company’s consolidated financial statements were approved by the Board of Directors on October 10, 2016.

 

  2.2. Basis of preparation

The Company and its subsidiary has incurred recurring losses, has an accumulated deficit and its current liabilities exceeds it current assets since it is currently in a transition process, from the preoperating to the operating stage. However, the Company’s capital structure contemplates additional capital contributions being made by the shareholders to the Company, as well as the additional financing agreement entered into with BNDES through December 31, 2012, as mentioned in Note 17. Consequently, these financial statements have been prepared on the basis thtat the Company will continue as a going concern.

The Company’s consolidated financial information has been prepared based on the historical cost, except for certain financial instruments, which are measured at their fair values, when prescribed.

 

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The main consolidation criteria are as follows:

 

  i. Elimination of intragroup asset and liability balances between the consolidated entities;

 

  ii. Elimination of the Parent's share in the subsidiary’s capital, reserves and retained earnings or accumulated losses; and

 

  iii. Elimination of income and expense balances arising from intercompany transactions between the consolidated entities.

Assets and liabilities are classified based on their liquidity and payment level as current when their realization or settlement is likely to occur within the next twelve months. Otherwise, assets and liabilities are stated as noncurrent. Monetary assets, liabilities and commitments denominated in foreign currencies were translated into Brazilian reais at the exchange rate prevailing at the balance sheet date.

At the end of each year, the Company verifies the carrying amounts of its or its subsidiary’s tangible and intangible assets to determine if there are any indication that these assets might be impaired. If there is such an indication, the recoverable amount of the asset is estimated and the carrying amount of tangible and intangible assets is written down so as to reflect the estimated recoverable amount, if necessary.

The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use. Impairment losses, if any, are immediately recognized in profit or loss.

In 2015 the Company’s management identified that (i) change in the estimated dates of startup of activities and reduction of the amounts set forth in the Regulated Environment Electricity Sale Agreements (CCEARs), (ii) the effects from the exemption claim brought by the Company before Aneel, (iii) the review of the construction budget and related impacts on the leverage of the project could constitute factors that would impact the amount of its property, plant and equipment items, thus the Company decided to test such assets for impairment.

The impairment test was conducted as at December 31, 2015, based on assumptions adopted by the Company on the projected cash flow from operating activities, internal discount rate, net debt and equity amount as at the impairment date.

The projected operating cash flow was based on the following assumptions: (i) the entire concession term, (ii) estimated startup date, (iii) estimated power balance, (iv) power volume and prices in the ACR and those projected for the ACL, in addition to the test power sales revenue, (v) costs and expenses on personnel, materials, outside services, sectorial charges, power purchase, transmission charges, taxes and other expenses and projected investments to be made between the test date up to the completion of works in UHE Jirau.

 

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The discount rate used to calculate the present value of the operating cash flow was the Company’s weighted average cost of capital (WACC) as at the test date. The WACC is calculated based on third-party capital cost (including the impact from the tax benefit of deductibility of such finance cost) and the own capital cost, the latter calculated based on the Capital Asset Pricing Model (CAPM) method.

The net debt amount considered in the test was based on the recordkeeping as at December 31, 2015, deducting cash and cash equivalents and securities - reserve account from financing amounts in current and noncurrent liabilities. The amount of the provision for exemption claim was also considered as at the test date.

Due to the test result, based on the aforementioned assumptions, the Company concluded that no impairment losses on assets should be recognized as at December 31, 2015.

These financial statements are presented in Brazilian reais, which is the Company’s functional currency and the amounts reported (texts and tables) are expressed in thousands of Brazilian reais, except if otherwise stated.

 

  2.3. Adoption of new accounting policies

New and revised standards and interpretations not yet effective on December 31, 2015:

Effective for annual periods beginning on or after January 1, 2016:

 

    IAS 16 and IAS 38 - amendments to clarify the accepted depreciation and amortization methods.

 

    IAS 27 – The standard was amended so as to include the accounting for investments in subsidiaries, joint ventures and associates under the equity method in the separate financial statements.

 

    IAS 1 – amendment to address the potential obstacles identified when exercising judgment upon preparation of the financial statements. Such amendment clarifies that the concept of materiality must be considered both for purposes of the information to be disclosed, either required or not, and upon organization of the explanatory notes and use of aggregation criteria.

Effective for annual periods beginning on or after July 1, 2016:

 

    2010-2014 annual improvement cycles: minor amendments to the existing pronouncements.

 

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Effective for annual periods beginning on or after January 1, 2018:

 

    IFRS 9 - Financial Instruments - new standard that introduces new requirements for the classification, measurement, impairment, hedge accounting and derecognition of financial assets and financial liabilities.

 

    IFRS 15 - Revenue from Contracts with Customers - defines five steps to be applied to contracts entered into with customers for purposes of revenue recognition and disclosure. It will supersede the standards currently effective on the matter (IAS 18 and IAS 11) and related interpretations (IFRIC 13, IFRIC 15 and IFRIC 18).

 

    IFRS 16 - Leases - At the meeting held on November 11, 2015, FASB decided that the effective date of adoption of the standard for closely-held companies will be annual periods beginning after December 15, 2019 and interim periods in the subsequent year. Early adoption would be permitted for all entities. The lease model proposed by FASB and IASB is in progress and the final version of the standard is being prepared.

The Company will adopt such standards when they become effective. The Company analyzed the impacts arising from such standards and no significant impact on its financial statements was identified.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

  a) Financial instruments

The Company and its subsidiary recognize the financial instruments in their financial statements when the entity becomes a party to the underlying instrument.

Financial assets and financial liabilities are initially measured at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, where applicable, after initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are immediately recognized in profit or loss.

Financial assets are classified into the following specific categories: financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets, and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined upon initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

 

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As at December 31, 2015 and 2014, the Company’s financial assets are classified as loans and receivables.

Loans and receivables are represented by non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including cash and cash equivalents, securities, trade receivables, pledges and restricted deposits and due from related parties) are measured at amortized cost using the effective interest method, less any impairment losses.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Financial liabilities are classified either as ‘financial liabilities at fair value through profit or loss’ or ‘other financial liabilities’.

As at December 31, 2015 and 2014, the Company's financial liabilities are classified as “Other financial liabilities”.

Other financial liabilities (including trade payables, borrowings, payables and UBP) are measured at amortized cost using the effective interest method.

The effective interest method is used to calculate the amortized cost of a financial liability and allocate its interest expense to the related period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including fees and points paid or received that are an integral part of the effective interest rate, transaction costs, and other premiums or discounts) over the expected life of the financial liability or, where appropriate, over a shorter period, for the initial recognition of the net carrying amount.

 

  b) Cash and cash equivalents

Cash and cash equivalents are maintained to meet short-term cash commitments and are comprised of cash, demand deposits and highly liquid short-term investments, without significant risk of change in fair value.

 

  c) Marketable Securities

Securities – reserve account are intended to collateralize the financing entered into with BNDES and other onlending banks.

 

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  d) Accounts receivables

Accounts receivables include the power sales amounts billed, including the sale of purchased power, when applicable.

Accounts receivables are initially recorded at the sales amount and subsequently at amortized cost, less the allowance for doubtful debts, when applicable.

The allowance for doubtful debts is recognized considering Management’s estimate of loss based on the parameters recommended by ANEEL, taking into account the information monthly determined by the Power Commercialization Chamber (CCEE), to the extent that they reflect Company’s best estimate of the loss.

 

  e) Due from related parties

Due from related parties correspond to amounts receivables for the supply of power in the normal course of the Company’s activities.

As at December 31, 2015, the Company does not expect any loss on due from related parties.

 

  f) Prepaid expenses

Represented by assets arising from payments which provision of services will occur in a subsequent period and that will not be reimbursed and/or received in cash, nor represent physically existing assets. Prepaid expenses are stated at the effective contractual amounts, less amortization incurred through the balance sheet date. During the construction of UHE Jirau, amortization of insurance premiums related to the plant’s construction is accounted for as a balancing item to property, plant and equipment.

 

  g) Recoverable taxes

Refer to tax credits relating to prepaid taxes levied on the acquisition of property, plant and equipment items, accounted for upon the occurrence of a taxable event. Such taxes are adjusted for inflation as prescribed by tax laws, when applicable.

 

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  h) Income Taxes

 

  h.1) Current taxes

The provision for income tax and social contribution (Income Taxes) is based on the taxable income for the period. Taxable income differs from the profit disclosed in the statement of profit or loss because it excludes income or expenses taxable or deductible in other periods, as well as permanently nontaxable or nondeductible items. The provision for income tax and social contribution is calculated by the Company based on the statutory rates prevailing at the balance sheet date.

 

  h.2) Deferred taxes

Deferred income tax and social contribution (“deferred taxes”) are recognized on temporary differences at the end of each reporting period distributed between asset and liability. The offset balances recognized in the financial statements and the corresponding tax basis used to determine taxable income, including tax losses, when applicable. Deferred tax liabilities are usually recognized on all temporary taxable differences and deferred tax assets are recognized on all temporary deductible differences, only when it is probable that the Company will report future taxable income in an amount sufficient to allow the utilization of these temporary deductible differences.

Deferred tax liabilities are recognized on temporary taxable differences, except when the Company is able to control the reversal of temporary differences and it is probable that such reversal will not take place in the foreseeable future in relation to an investee. Deferred tax assets arising from temporary deductible differences are recognized only if it is probable that there will be sufficient taxable income against which temporary differences can be utilized and it is probable that their reversal will take place in the foreseeable future.

Deferred tax assets are reviewed at the end of each reporting period and, when it is no longer probable that future taxable income will be available to allow the recovery of all or part of the assets, the asset balance is adjusted for the expected recoverable amount.

Deferred tax assets and liabilities are measured at the tax rates applicable for the period in which the liability is expected to be settled or the asset realized, based on the tax rates set forth in the tax law prevailing at the end of each reporting period, or when new legislation has been substantially approved. Deferred tax assets and liabilities are measured to reflect the tax implication that would arise from the way in which the Company expects, at the end of each reporting period, to recover or settle the carrying amount of these assets and liabilities.

 

  h.3) Current and deferred income tax and social contribution

Current and deferred income tax and social contribution are recognized in profit or loss as expenses or income, except when they correspond to items recognized in ‘Other comprehensive income’, or directly in equity, in which case current and deferred taxes are also recognized in ‘Other comprehensive income’ or directly in equity, respectively.

 

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  i) Judicial deposits

Judicial deposits are initially recorded at the amount deposited in financial institution as determined by a court, plus income earned (managed basic rate (TR) + interest from 3% to 6% p.a.) up to the balance sheet date, which are recognized as finance income.

 

  j) Property, plant and equipment and intangible assets (except UBP)

Property, plant and equipment items are stated at acquisition or construction cost, including unapportioned expenses on payroll and related taxes, social and environmental costs, insurance premium amortization and interest on borrowings, all directly related to the construction of UHE Jirau, less depreciation and impairment losses, when applicable.

Once a year or in the event of occurrence of any fact that requires analysis, the Company verifies the carrying amounts of its tangible and intangible assets to determine if there are any indications that these assets might be impaired. If there is such an indication, the recoverable amount of the asset is estimated and the carrying amount of tangible and intangible assets is written down so as to reflect the estimated recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use. Impairment losses, if any, are immediately recognized in profit or loss. The Company did not recognize any impairment loss in the financial statements for the year ended December 31, 2015 or prior periods.

 

  j.1) Depreciation and amortization

Depreciation is calculated on a straight-line basis based on the annual rates determined by Aneel – which are adopted by companies operating in the Brazilian power sector and represent the estimated useful life of the assets – limited to the plant concession or authorization term, when applicable, based on the book balances recorded in the measurement units comprising these projects. The average annual depreciation rates of the Company’s assets are stated in Note 14.

During the mixed plant implementation and operation stage (since the power generation units started to operate over various months), such proportional method is applied to the installed power of each generation unit in operation. The Company’s management understands that such method is the method that best reflects the relation between depreciation expenses and the use of assets.

Software amortization is recognized on a straight-line basis, based on the estimated useful life of the assets. The estimated useful life and amortization method are reviewed at the end of each reporting period, and the effect of any changes in estimates is accounted for on a prospective basis.

UBP costs are amortized proportionally to the number of machinery in operation, based on rates that are compatible with the concession term. Software costs are amortized at the rate of 20% p.a.

LO costs are amortized based on the percentage of machiney that started to operate over the concession term.

 

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  j.2) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that take substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of such assets through the date they are ready for their intended use or sale.

Income on investments earned on the short-term investment of funds of specific borrowings not yet spent on the qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other borrowing costs are recognized in profit or loss for the period in which they are incurred.

 

  k) Key sources of estimation uncertainty

The preparation of financial statements requires Company’s management to adopt estimates and judgment to account for certain transactions that affect its assets, liabilities, income and expenses, and the disclosure of information on its financial statements.

To make these estimates and related assumptions, Management uses the best information available on the balance sheet date, as well as past and/or current events, also considering assumptions on future events considered as reasonable under the circumstances. Accordingly, actual results may differ from those estimates.

Therefore, the financial statements include estimates mainly related to: (i) useful life of property, plant and equipment, which is based on studies made by ANEEL; (ii) provisions for risks; (iii) definition of discount rates used to calculate the present value of assets and liabilities; (iv) determination of the impairment of assets; (v) recovery of deferred taxes; (vi) estimated amounts relating to the provision for environmental costs relating to the compensatory measures described in the LI and LO issued by the IBAMA and (vii) disclosure of financial instruments.

The estimates and accounting judgments are revised continuously and such revisions are recognized in the period in which the revisions are made and in any future periods affected.

 

  l) Public asset use (“UBP”)

The Company accounted for the UBP in intangible assets and liabilities at present value on the execution date of the concession arrangement of UHE Jirau (August 13, 2008), which determined that the subsidiary should pay as UBP during the entire concession period the annual original amount on the contract date of R$7,873.

The UBP payments is annually adjusted by ANEEL and based on the Extended National Consumer Price Index (IPCA) issued by the Brazilian Institute of Geography and Statistics (IBGE).

After initial recording, the UBP balances are monthly adjusted based on the rate that reflects the weighted average cost of capital of the Jirau Project upon the acquisition of concession.

 

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Upon startup of activities, the UBP installments in the amount of R$892 (beginning August 2013 up to July 2014), R$950 (beginning August 2014 up to July 2015) and R$1,040 (beginning August 2015 up to July 2016) also started to be paid. Accordingly, finance charges on the UBP liability in intangible assets will no longer be capitalized but the capitalized balance will rather be amortized, proportional to the number of machinery that started to operate limited to the concession term. The adjustment of the related liability at present value is recognized as finance costs.

 

  m) Sector charges

Sector charges are accounted for as costs on the accrual basis.

 

  n) Technological Research & Development (R&D) Program

Under Law 9991, of July 24, 2000, article 24 of Law 10438, of April 26, 2002, and article 12 of Law 10848, of March 15, 2004, the companies authorized to independently produce power, among other provisions, must annually invest the percentage rate of 1% of their net operating revenue in the Technological Research & Development Program of the Power Sector (R&D Program), based on the regulations established by ANEEL.

 

  o) Financial compensation for the use of water resources

The financial compensation, introduced by article 20, § 1 of the 1988 Federal Constitution, and regulated by Law 7990/1989, corresponds to the indemnity payable to the Brazilian states, the Distrito Federal and the municipalities, as well as direct federal administration bodies, in consideration for the exploration of water resources for power generation purposes. ANEEL Resolution 67, of February 22, 2001 determines that the amount to be monthly paid must correspond to 6.75% of the power produced in the month multiplied by the Adjusted Reference Rate (TAR), set by ANEEL, to be paid by the power concessionaires to the states, the Distrito Federal and the municipalities where power production facilities are located, or whose areas were taken by the water of the respective reservoirs, and direct federal administration bodies. This compensation is accounted for as costs in profit or loss for the year.

 

  p) Provision for environmental costs

The subsidiary accounted for at present value the costs on environmental programs. The amounts were recorded in intangible assets (those arising from the operating stage) and in property, plant and equipment (those arising from the implementation stage) and their balancing items are recorded in liabilities. The programs address compensatory measures arising from the implementation and operation of UHE Jirau in Madeira river; the LI and LO were issued by IBAMA.

The nominal amounts of the subsidiary’s future environmental costs were discounted to present value based on the subsidiary’s weighted average cost of capital. The costs on the programs were projected based on agreements contracted and estimated.

 

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Upon startup of activities, the adjustment to the provision for environmental costs is recognized in liabilities, based on the rate used to calculate present value adopted to account for the provision.

 

  q) Suppliers

Suppliers comprise amounts payable based on invoices received and percentage-of completion of construction work, or based on estimates, in the lack of a relevant documentation.

 

  r) Provision for contingencies

Provisions are recongized considering the opinion of in-house, outside legal counsel and the Company’s management assessment that there is a present obligation (legal or constructive) as a result of a past event, it is probable (more likely than not) there will be an outflow of resources that embodies economic benefits to settle the referred obligation and a reliable estimate of the amount to settle obligation can be made.

 

  s) Borrowings and financing

Borrowings and financing are initially recognized at fair value, less borrowings costs, and are subsequently measured at amortized cost using the effective interest method.

 

  t) Adjustment to present value

The assets and liabilities arising on long-term transactions are discounted to present value based on market interest rates prevailing on the transaction date.

 

  u) Profit or loss

The amount of consolidated profit or loss is basically represented by operating income, costs and expenses, administrative costs and finance income and finance costs not directly attributable to the construction of UHE Jirau. Such amounts are accounted for on accrual basis.

 

  v) Revenue, costs and expenses

Revenue comprises the fair value of the consideration received or receivable for the sale of power in the normal course of the Company’s activities. Revenue is stated net of taxes, returns, rebates and discounts.

 

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Power sales revenue is recognized when (i) it is probable that the economic benefits associated with the transactions will flow to the subsidiary; (ii) the revenue amount can be reliably measured; (iii) the risks and rewards from the sale were transferred to the buyer; (iv) the costs incurred or to be incurred related to the transaction can be reliably measured; and (v) the subsidiary no longer holds the control over and responsibility for the power sold.

The accounting made by the Company follows the accrual basis.

Costs are basically comprised of: provision for energy contingencies (liability exclusion and provision for transmission system use fee (EUST)), power grid charges, depreciation and amortization, provision for GSF (Generating Scaling Factor), costs on transactions at CCEE, financial compensation for the use of water resources (CFURH), personnel costs, electric power service inspection fee (TFSEE), amortization of UBP and other operating costs.

Expenses comprise mainly personnel and management expenses, finance costs, insurance, contingencies (labor and tax), expenses on outside services, ISSQN tax assessment notice, fine and other expenses on social compensation, expenses on materials, allowance for doubtful debts, depreciation and amortization and other administrative expenses.

 

  w) Statements of cash flows

The Company classifies in the statements of cash flows the interest paid as financing activities since it understands that the interest paid corresponds to borrowing costs.

 

4. CASH AND CASH EQUIVALENTS

 

     12/31/2015      12/31/2014  
     (unaudited)         

Cash and banks

     191         492   

Short-term investments

     143.706         73.809   
  

 

 

    

 

 

 

Total

     143.897         74.301   
  

 

 

    

 

 

 

Short-term investments are made with prime financial institutions, based on the risk rating assigned by the main risk rating agencies. Short-term investments are highly liquid, subject to floating rates and yield interest based on a percentage of the interbank deposit (CDI) rate set upon contracting, are readily convertible into a known cash amount, without significant risk of change in value; Short-term investments yield interest between 100.3% and 100.10% of the CDI as at December 31, 2015 (99% to 101.5% of the CDI as at December 31, 2014).

 

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Additionally, cash and cash equivalents are held to meet short-term cash requirements rather than for investment or other purposes.

 

5. MARKETABLE SECURITIES

 

     12/31/2015      12/31/2014  
     (unaudited)         

Investments in repurchase agreements

     61.621         10.612   

Current

     —           10.612   

Non-current

     61.621         —     

Marketable securities are held to collateralize the financing entered into with BNDES and other onleding banks (Note 18) and refer to the debt service reserve account and insurance account. Investments are made in federal bonds yielding interest of 94.55% of the CDI on average (94% of the CDI rate as at December 31, 2014).

 

6. ACCOUNTS RECEIVABLES

Accounts receivables are initially recorded at the sales amount and subsequently at amortized cost, less the allowance for doubtful debts. Such allowance is currently recognized based on the apportionment of default in the power sector. Such apportionment is made on a monthly basis between the agents with credit balance in the month, on the amount of the surplus financial settlement or exposure at the Power Commercialization Chamber (CCEE).

 

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Pursuant to CCEARs, revenues are monthly billed based on the contracted power output (in MWh) and the contracted sales price (price annually adjusted for inflation on the anniversary date of each distribution company). Revenues are monthly billed through the issuance of the invoice.

 

     12/31/2015      12/31/2014  
     (unaudited)         

Energy sale - ACR – distribution companies

     178.685         82.807   

Energy sale - ACL – related parties

     115.845         44.868   

Energy test sale - CCEE

     104.430         24.376   

Allowance for doubtful debts

     (18.009      (924
  

 

 

    

 

 

 

Total

     380.951         151.127   
  

 

 

    

 

 

 

Aging list of accounts receivables:

 

     12/31/2015      12/31/2014  
     (unaudited)         

0 to 30 days

     104.430         44.868   

30 to 60 days

     178.685         82.807   

60 to 90 days

     115.845         24.376   
  

 

 

    

 

 

 

Total

     398.960         152.051   

 

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Changes in the allowance for doubtful debts are as follows:

 

     12/31/2015     12/31/2014  
     (unaudited)        

Opening balance

     (924     (6.173

Bad debt expense

     (18.009 )*      (924

Reversal

     924        6.173   
  

 

 

   

 

 

 

Closing balance

     (18.009     (924

 

* The increase in the allowance derived from receivables not settled by doubtful agents at the CCEE.

Aging list of trade receivables included in the allowance for doubtful debts:

 

     12/31/2015      12/31/2014  
     (unaudited)         

Over 120 days

     18.009         924   

 

7. RECOVERABLE TAXES

Current

 

     12/31/2015      12/31/2014  
     (unaudited)         

Tax on revenue (COFINS)

     200.984         186.359   

Monthly prepaid income tax and social contribution

     66.801         —     

Tax on revenue (PIS)

     43.634         40.957   

Withholding income tax (IRRF)

     11.835         4.065   

Withholding CSLL

     3.258         —     

Withholding COFINS

     —           2.299   

Service tax (ISSQN)

     —           —     
  

 

 

    

 

 

 

Social security tax (INSS)

     —           —     
  

 

 

    

 

 

 

State VAT (ICMS)

     —           —     
  

 

 

    

 

 

 

Other recoverable taxes

     118         6   
  

 

 

    

 

 

 

Total

     326.630         233.686   
  

 

 

    

 

 

 

 

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Noncurrent

 

     12/31/2015      12/31/2014  
     (unaudited)         

Tax on revenue (COFINS)

     260.201         453.337   

Tax on revenue (PIS)

     45.606         98.887   
  

 

 

    

 

 

 

Total

     305.807         552.224   
  

 

 

    

 

 

 

IRRF amounts refer to withholding taxes upon the redemption of short-term investments and are offset against federal taxes.

Recoverable PIS and COFINS balances are generated upon the acquisition of services and property, plant and equipment items (mainly civil construction-related), for the implementation of the power plant. After startup of operations of the plant, resulting in increase in ESBR’s revenues, such taxes were subsequently offset upon filing of the Digital Tax Recordkeeping - EFD Contribution (public system of digital taxation control) with the Brazilian Federal Revenue Service.

Consequently, such fact has consummated its right to offset such amounts against any tax managed by the Brazilian Federal Revenue Service, thus offsetting the contributions to PIS and COFINS, as well as other taxes beginning December 2014. The credits generated in 2015 were processed through the Public Digital Recordkeeping System (SPED) in 2015.

 

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Variation in the period is as follows:

 

     12/31/2014      Addition
Credits generated
     Transfer
short-term
    Offsets     12/31/2015  
            (unaudited)      (unaudited)     (unaudited)     (unaudited)  

Current

            

PIS

     40.957         —           69.998        (67.321     43.634   

COFINS

     186.359         —           272.512        (257.887     200.984   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     227.316         —           342.510        (325.208     244.618   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Noncurrent

            

PIS

     98.887         16.717         (69.998     —          45.606   

COFINS

     453.337         79.376         (272.512     —          260.201   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     552.224         96.093         (342.510     —          305.807   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     779.540         96.093         —          (325.208     550.425   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

8. DEFERRED TAXES

 

  a) The subsidiary’s deferred taxes are broken down as follows:

 

Nature

   12/31/2015     12/31/2014     12/31/2013  
     (unaudited)           (unaudited)  

(i) Tax loss and preoperating expenses

     200.095        127.910        176.606   

(ii) Temporary differences *

     3.023.501        2.083.057        158.599   

Total

     3.223.596        2.210.967        335.205   

Combined income tax and social contribution rate

     34     34     34
  

 

 

   

 

 

   

 

 

 

Total

     1.096.023        751.729        113.970   
  

 

 

   

 

 

   

 

 

 

 

(*) Basically comprise the allowance for doubtful debts and provision for risks.

 

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Such assets will be used as from the date the subsidiary recognizes profit, which is expected to take place in 2021. As from such date, the subsidiary is expected to amortize all accumulated credits within no more than 11 years.

The subsidiary estimates the utilization of the deferred tax asset based on projected future revenue. Accordingly, the variance between years is due to factors that are inherent in the subsidiary’s operation and, in 2016 and 2017 taxable profits are expected to decrease, due to some aspects, such as: i) full recognition in profit or loss of depreciation expenses, based on the activity startup schedule; ii) full recognition in profit or loss of financing charge expenses, based on the activity startup schedule; and iii) change in the revenue mix with higher share of the ACR, under the regulated contractual environment.

 

  b) Reconciliation of tax expenses with statutory tax rates:

 

     12/31/2015     12/31/2014     12/31/2013  
     (unaudited)           (unaudited)  

Pretax income

     (1.047.735     (1.812.422     (228.430

Statutory tax rate

     34 %     34 %     34 %
  

 

 

   

 

 

   

 

 

 

Taxes at statutory rates

     356.230       616.223       77.667   

Permanent differences

     (7.844     (528     100   
  

 

 

   

 

 

   

 

 

 

Income tax and social contribution in profit or loss for the period

     348.386       615.695       (77.767
  

 

 

   

 

 

   

 

 

 

Breakdown of taxes in profit or loss:

      

Current

     (187     (22.064     —    

Deferred

     348.573       637.759       77.767  
  

 

 

   

 

 

   

 

 

 

Total tax in profit or loss

     348.386       615.695       (77.767 )
  

 

 

   

 

 

   

 

 

 

Effective rate

     33 %     34 %     34

 

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9. OTHER CURRENT ASSETS

 

     12/31/2015      12/31/2014  
     (unaudited)         

Power concessionaires

     —           —     

Advances to suppliers

     9.037         3.806   

R&D projects

     5.941         5.193   

Salary prepayment - vacation

     300         250   

Disposal of assets and rights

     165         486   

Advances of travel expenses

     27         416   

Master Control GSC (*)

     —           16.652   
  

 

 

    

 

 

 

Total

     15.470         26.803   
  

 

 

    

 

 

 

 

(*) The amount relating to the Master control GSC of R$16,652 was fully received in 2015. This amount received from ANEEL was related to costs incurred with the implementation of Generation Station Coordinator (GSC0 at the generation unit of UHE Jirau. The GSC is a system designed to control the generation volume of UHEs Jirau and Santo Antônio.

 

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10. JUDICIAL DEPOSITS

 

     12/31/2015      12/31/2014  
     (unaudited)         

Tax

     25.383         23.495   

Labor

     1.482         2.445   

Civil

     1.308         11.827   
  

 

 

    

 

 

 

Total

     28.173         37.767   
  

 

 

    

 

 

 

Such deposits refer to amounts related to ongoing lawsuits at judicial level (Note 23).

 

11. PREPAID EXPENSES

 

  12.1. Insurance

 

     12/31/2015 (unaudited)  
     Assets      Liabilities  

Risk

   Premium
amount
     Amount
amortized
     Balance
to be
amortized
     Balance
payable
 

Civil liability (a)

     1.067         935         132         —     

Engineering (b)

     103.291         73.133         30.158         67.291   

Compliance with the concession arrangement (c)

     16.427         14.332         2.095         —     

Property damages upon equipment transportation (d)

     834         398         436         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     121.619         88.798         32.821         67.291   
  

 

 

    

 

 

    

 

 

    

 

 

 

Renegotiation of the GSF (Generating Scaling Factor) – hydrological risk premium (f)

           169.548         —     

Other prepaid expenses

           7         —     

Subtotal

           169.555         —     
        

 

 

    

 

 

 

Total

           202.376         67.291   
        

 

 

    

 

 

 

Current

           38.944         67.291   

Noncurrent

           163.432         —     
        

 

 

    

 

 

 

Total

           202.376         67.291   
        

 

 

    

 

 

 

 

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     12/31/2014  
     Assets      Liabilities  

Risk

   Premium
amount
     Amount
amortized
     Balance
to be
amortized
     Balance
payable
 

Civil liability (a)

     1.067         326         741         —     

Engineering (b)

     90.054         83.411         6.643         869   

Compliance with the concession arrangement (c)

     16.427         12.401         4.026         —     

Property damages upon equipment transportation (d)

     42         17         25         —     

Delivery of power acquired in auction (A-3) (e)

     951         893         58         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     108.541         97.048         11.493         869   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unrecognized insurance endorsement - risks: engineering, operating and loss of profits

           36.000         —     

Warranty insurance

           413         —     

Operating permit fee

           314         —     
        

 

 

    

 

 

 

Subtotal

           36.727         —     
        

 

 

    

 

 

 

Total

           48.220         869   
        

 

 

    

 

 

 

Current

           9.993         869   

Noncurrent

           38.227         —     
        

 

 

    

 

 

 

Total

           48.220         869   
        

 

 

    

 

 

 

The Company and its subsidiary take all insurance necessary to comply with the legislation, BNDES financing contractual obligations and concession-related obligations, by transferring to insurance companies the risks below related to the plant’s construction and operation project:

 

  (a) General civil liability – works and operation

This insurance covers the damages caused to third parties, general civil liability related to the plant’s construction work and operation. It aims at indemnifying the insured in connection with any sums for which it is legally responsible for paying in relation to death, bodily injury, interference, transgression or disturbance, during the effective period arising from or relating to the project/business. This insurance is effective through March 20, 2016.

 

  (b) Operating and loss of profits and business discontinuance risks

 

    Engineering, operating and business discontinuance risks (initial insurance policy)

 

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Covers property damages arising from accidents in facilities and assembling activities, manufacturer’s risk, extended maintenance and operating and business discontinuance risks. The amounts at risk and respective maximum indemnity limits were determined as follows:

 

Type of insurance

   Amount
at risk
     Maximum
indemnity limit
     Insurance term considering
endorsement

Installation and assembly risk plus one year of extended maintenance

     7.337.814         800.000       02/13/2009 to 06/20/2014
(06/20/2015 - for extended
maintenance)

Operational risks

     7.337.814        
 
1,000,000
(Combined)
  
  
   02/13/2009 to 06/20/2014

Business discontinuance risk

     2.454.493          02/13/2009 to 06/20/2014

 

    Engineering, operational and loss of profits (endorsement of the initial policy)

Covers all installation and assembling risks, test claim, commissioning and extended maintenance and all operational risks. The policy is effective between January 1, 2012 and March 20, 2016.

 

Type of insurance

   Amount
at risk
     Maximum
indemnity limit
     Insurance term considering
endorsement

Installation and assembly risk plus one year of extended maintenance

     13.823.538         800.000       01/01/2012 to 03/20/2016

(03/20/2017 - for extended
maintenance)

Operational risks

     13.823.538        

 

1.000.000

(Combined)

  

  

   01/01/2012 to 03/20/2016

Business discontinuance risk

     2.454.493          01/01/2012 to 03/20/2016

 

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    Insurance payable

Arbitration proceeding whose filing was requested by Sul América Cia. Nacional de Seguros, Allianz Seguros S.A., Companhia de Seguros Aliança do Brasil, Mapfre Vera Cruz Seguradora S.A, Itaú Seguros S.A. and Zurich Minas Brasil Seguros S.A. related to the extension of coverage of two insurance policies. The proceeding was settled on December 22, 2015, a court ruling was handed down determining the amount of the additional premium of R$103,291. For this reason, and taking into account the amount already deposited in escrow by the subsidiary of R$36,000, the subsidiary was sentenced to pay, withinb a period of thirty days, the amount of R$67,291, in addition to the reimbursement of the costs in the amount of R$580 and attorneys’ fees in the amount of R$8,177, incurred by plaintiffs, the last two amounts being accounted for in “Other current liabilities” (Note 25).

 

  (c) Performance bond of the concession agreement of Auction 05/08

The subsidiary took insurance to guarantee compliance with the concession arrangement. This insurance secures the indemnity, up to the amount of the warrant set in the policy, for the loses arisin from the default of the obligations assumed by the borrower (subsidiary) under a construction, service provision or supply agreement entered into among it and the insured (ANEEL) and covered by the policy. This insurance is effective through January 30, 2017.

 

  (d) International transportation (import)

This insurance was taken by the subsidiary for property damages occurred during the transportation of imported equipment, including the substation coming from Korea and the generation units (turbines) coming from China. There is also a projection to cover any delay in the startup of activities, arising from a damage or loss caused to any cargo, only for the six first generation units (turbines). The validity of such insurance was renewed and cover risks through December 31, 2015 and was renewed again through December 31, 2015.

 

  (e) Warranty of delivery of power acquired in Auction A-3

The subsidiary took insurance for performance guarantee on the delivery of power (additional coverage) from Auction
A-3.

 

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This insurance secures the indemnity, up to the amount of the warrant set in the policy, for the loses arisin from the default or service provision agreement entered into among entered into among it and the insured (ANEEL) and covered by the policy, excluding any loss arising from other insurance line, such as civil liability and business discontinuance. The expected loss will be converted into claim, upon notification, by the insured (ANEEL) to the insurer, of the completion of the administrative proceedings that confirm the default of the borrowe (subsidiary). This insurance is effective through November 30, 2016.

 

    Partial release of the performance bond - UHE Jirau (Case 48500.004505/2008-02)

Under Official Letter 398/2015-SCG/ANEEL, of March 31, 2015, since UHE Jirau attained the “Beginning of operation of the generation unit that comprises 50% of the total capacity of the plant”, according to Memorandum nº 82/2015-SFG/ANEEL, of March 27, 2015, ANEEL informed that the respective performance bond was already partially released in the amount corresponding to 85% of its original amount, pursuant to item 12.5.1 of the invitation to bid of Auction 05/08.

Accordingly, the total amount of the effective bonds was reduced, through the substitution or endorsement of policy (s), to the total amount corresponding to R$97,500 and must e delivered to Banco Bradesco S.A. – Department of Shares and Custody.

 

  (f) For the GSF (Generating Scaling Factor), see Note 24 - item a.

 

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12. PROPERTY, PLANT AND EQUIPMENT

As at December 31, 2015, the subsidiary owns 37 generation units in operation (20 generation units as at December 31, 2014), as follows:

 

Sequence

     Generation
unit
     ANEEL
Order
     Startup of
activities
     Sequence      Generation
unit
     ANEEL
Order
     Startup of
activities
 
          29         3.087         09/06/2013         20ª         35         4.849         12/18/2014   
          40         349         02/12/2014         21ª         09         25         01/08/2015   
          30         374         02/19/2014         22ª         10         233         02/03/2015   
          01         410         02/22/2014         23ª         14         266         02/06/2015   
          02         514         03/08/2014         24ª         12         520         03/04/2015   
          39         514         03/08/2014         25ª         13         520         03/04/2015   
          31         1.271         04/24/2014         26ª         28         520         03/04/2015   
          03         1.310         04/26/2014         27ª         15         1234         04/28/2015   
          04         1.737         06/03/2014         28ª         27         1408         05/08/2015   
  10ª         32         2.412         07/10/2014         29ª         26         1630         05/21/2015   
  11ª         05         2.861         07/29/2014         30ª         24         1881         06/11/2015   
  12ª         38         3.618         09/04/2014         31ª         25         1947         06/17/2015   
  13ª         07         3.772         09/18/2014         32ª         23         2074         06/25/2015   
  14ª         06         4.092         10/09/2014         33ª         22         2.469         07/31/2015   
  15ª         33         4.213         10/23/2014         34ª         21         2.989         09/04/2015   
  16ª         08         4.260         10/30/2014         35ª         16         3.357         10/01/2015   
  17ª         34         4.335         11/06/2014         36ª         11         3516         10/21/2015   
  18ª         37         4.549         11/25/2014         37ª         20         3.995         12/11/2015   
  19ª         36         4.720         12/06/2014               

 

  a) Breakdown

 

     12/31/2015 (unaudited)  
     Adjusted cost      Accumulated
depreciation
     Net
amount
 

In service

        

Generation

        

Reservoir, dams and water mains

     3.658.321         (128.361      3.529.960   

Buildings - constructions and improvements

     4.042.028         (149.390      3.892.638   

Machinery and equipment

     6.045.258         (233.865      5.811.393   

Furniture and fixtures

     2.132         (136      1.996   

Vehicles

     1.499         (226      1.273   

Environmental costs

     110.940         (12.717      98.223   

Land

     4.830         —           4.830   

 

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Table of Contents
     12/31/2015 (unaudited)  
     Adjusted cost      Accumulated
depreciation
     Net
amount
 

Connection system:

        

Machinery and equipment

     469.561         (23.275      446.286   

Buildings - constructions and improvements

     2.228         (208      2.020   

Management:

        

Machinery and equipment

     2.453         (336      2.117   

Vehicles

     683         (402      281   

Buildings - constructions and improvements

     83.101         (14.527      68.574   

Furniture and fixtures

     204         (5      199   
  

 

 

    

 

 

    

 

 

 

Subtotal

     14.423.238         (563.448      13.859.790   
  

 

 

    

 

 

    

 

 

 

In progress

        

Rights of way

     94         —           94   

Reservoirs, dams and water mains

     897.101         —           897.101   

Machinery and equipment

     1.967.538         —           1.967.538   

Environmental costs

     59.419         —           59.419   

Furniture and fixtures - Equipment in general

     1.294         —           1.294   

Advances to suppliers

     169.460         —           169.460   

Other construction costs

     157.769         —           157.769   

Construction works

     3.252.952         —           3.252.952   

Other property, plant and equipment

     22.410         —           22.410   

Property, plant and equipment to allocate

     700.452         —           700.452   
  

 

 

    

 

 

    

 

 

 

Subtotal

     7.228.489         —           7.228.489   
  

 

 

    

 

 

    

 

 

 

Total

     21.651.727         (563.448      21.088.279   
  

 

 

    

 

 

    

 

 

 

 

     12/31/2014  
     Adjusted cost      Accumulated
depreciation
     Net amount  

In service

        

Generation

        

Reservoir, dams and water mains

     1.415.662         (25.732      1.389.930   

Buildings - constructions and improvements

     2.038.397         (37.088      2.001.309   

Machinery and equipment

     2.206.545         (42.928      2.163.617   

Furniture and fixtures

     892         (20      872   

Vehicles

     356         (12      344   

Environmental costs

     143.922         (9.276      134.646   

Connection system

        

Machinery and equipment

     284.088         (9.818      274.270   

Buildings - constructions and improvements

     2.228         (119      2.109   

 

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Table of Contents
     12/31/2014  
     Adjusted cost      Accumulated
depreciation
     Net amount  

Management

        

Machinery and equipment

     527         (93      434   

Vehicles

     683         (304      379   

Buildings - constructions and improvements

     14         —           14   

Furniture and fixtures

     4         —           4   
  

 

 

    

 

 

    

 

 

 

Subtotal

     6.093.318         (125.390      5.967.928   

In progress

        

Land

     106.752         —           106.752   

Reservoirs, dams and water mains

     1.947.119         —           1.947.119   

Machinery and equipment

     2.750.435         —           2.750.435   

Environmental costs

     21.918         —           21.918   

Furniture and fixtures - Equipment in general

     1.218         —           1.218   

Advances to suppliers

     1.000.629         —           1.000.629   

Other construction costs

     2.763.861         —           2.763.861   

Construction works

     4.469.801         —           4.469.801   

Other property, plant and equipment

     165.009         —           165.009   

Property, plant and equipment to allocate

     549.236         —           549.236   
  

 

 

    

 

 

    

 

 

 

Subtotal

     13.775.978         —           13.775.978   
  

 

 

    

 

 

    

 

 

 

Total PP&E

     19.869.296         (125.390      19.743.906   
  

 

 

    

 

 

    

 

 

 

Capitalization of interest to property, plant and equipment amounts to R$2,604,182 as of December 31, 2014 ((R$2,015,722 as of December 31, 2013 (unaudited) ).

 

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Table of Contents
  b) The table below shows the variation in property, plant and equipment from January 1 to December 31, 2015 (unaudited):

 

     Reservoir,
dams and
water mains
    Buildings -
constructions
and
improvements
    Machinery
and
equipment
    Vehicles     Furniture
and
fixtures
    Environmental
costs
    Land      Construction
in progress
    Total  

Balance as at 12/31/2014

     1.389.930        2.003.432        2.438.321        723        876        134.646        —           13.775.978        19.743.906   

Inflows

     —          —          11.827        871        1.440        —          —           1.779.916        1.794.054   

Transfers

     2.242.659        2.086.718        4.015.403        355        —          (32.982     4.830         (8.316.983     —     

Write-offs

     —          —          (1.120     (83     —          —          —           (14.941     (16.144

Inflation adjustment

     —          —          —          —          —          —          —           4.519        4.519   

Depreciation

     (102.629     (126.918     (204.635     (312     (121     (3.441     —           —          (438.056
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance as at 12/31/2015

     3.529.960        3.963.232        6.259.796        1.554        2.195        98.223        4.830         7.228.489        21.088.279   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

  c) The table below shows the variation in property, plant and equipment from January 1 to December 31, 2014:

 

     Reservoir,
dams and
water mains
    Buildings -
constructions
and
improvements
    Machinery
and
equipment
    Vehicles     Furniture
and
fixtures
    Environmental
costs
    Construction
in progress
    Total  

Balance as at 12/31/2013

     76.576        126.257        217.205        477        —          210.554        16.574.025        17.205.094   

Inflows

     —          14        5.051        356        896        —          2.710.166        2.716.483   

Transfers

     1.338.227        1.912.946        2.272.961        —          —          —          (5.524.134     —     

Write-offs

     —          —          (6.598     —          —          (66.632     —          (73.230

Inflation adjustment

     —          —          —          —          —          —          15.921        15.921   

Depreciation

     (24.873     (35.785     (50.298     (110     (20     (9.276     —          (120.362
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 12/31/2014

     1.389.930        2.003.432        2.438.321        723        876        134.646        13.775.978        19.743.906   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) The amount derives from the installation license (L.I.) relating to provisions for environmental costs on environmental licenses and plant operating licenses. The provisions for environmental costs were adjusted based on the annual amounts of environmental programs, from 2015 to 2043. The table below shows the changes in property, plant and equipment from January 1 to December 31, 2013 (unaudited):

 

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Table of Contents
     Reservoir,
dams and
water mains
    Buildings -
constructions
and
improvements
    Machinery
and
equipment
    Vehicles     Environmental
costs
     Construction
in progress
    Total  

Balance as of December 31, 2012

     —          —          —          —          —           13.511.435        13.511.435   

Inflows

     —          —          382        —          210.554         3.487.752        3.698.688   

Transfers

     77.436        127.680        219.364        682        —           (425.162     —     

Write-offs

     —          —          —          —          —           —          —     

Depreciation

     (860     (1.423     (2.541     (205     —           —          (5.029
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance as of December 31, 2013

     76.576        126.257        217.205        477        210.554         16.574.025        17.205.094   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

  d) Depreciation rates and estimated useful life

 

     Depreciation
(% p.a.)
     Useful life
average (years)
 

Reservoir, dams and water mains

     3,45         29   

Buildings - constructions and improvements

     3,45         29   

Machinery and equipment (other)

     3,57         28   

Furniture and fixtures

     6,25         16   

Vehicles

     14,29         7   

 

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The subsidiary uses the depreciation rates determined by ANEEL, limited to the concession term.

 

13. INTANGIBLE ASSETS

The Company conducted a detailed analysis of the costs and terms of the programs relating to the implementation stage, as well as those arising from the operating license that will be effective through the end of the concession term, that is, during the operating stage. The costs on the implementation stage relating to the decommissioning and Damaged Area Recovery Program (PRAD) were also calculated.

Variation in intangible assets from January 1 to December 31, 2015 (unaudited) is as follows:

 

     UBP      Software      Operating
license
     Total  

Balance as at 12/31/2014

     110.877         4.523         479.438         594.838   

Additions

     —           3.343         —           3.343   

Write-offs

     —           (72      —           (72

Inflation adjustment

     —           —           13.907         13.907   

Amortization

     (3.868      (794      (10.075      (14.737
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2015 (unaudited)

     107.009         7.000         483.270         597.279   
  

 

 

    

 

 

    

 

 

    

 

 

 

Changes in intangible assets from January 1 to December 31, 2014 is as follows:

 

     UBP      Software      Operating
license
     Total  

Balance as at 12/31/2013 (unaudited)

     117.151         3.027         245.756         365.934   

Additions

     —           2.188         215.545      217.733   

Inflation adjustment

     —           —           20.493         20.493   

Amortization

     (6.274      (692      (2.356      (9.322
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2014

     110.877         4.523         479.438         594.838   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*) The additions in the operating license (L.O.) refer to provision for environmental costs and plant’s operating licenses. The provision for environmental costs was adjusted based on the annual amounts of the environmental programs, from 2015 to 2043.

 

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Table of Contents
  a) Amortization rates and estimated useful life

UBP costs are amortized over the concession term, which began in September 2013, the month of startup of operation of the first machinery up to 2043, end of the concession term.

LO costs are amortized proportionally to the number of machinery in operation based on rates compartible with the concession term. Software costs are amortized at the rate of 20% p.a.

 

14. TAXES PAYABLE

On May 13, 2014, Law 12973 was enacted to:

 

  i. Amend the federal tax law that addresses the Corporate Income Tax (IRPJ), the Social Contribution on Net Income (CSLL), the Social Integration Program Tax on Revenue (PIS/PASEP), and the Social Security Funding Tax on Revenue (COFINS).

 

  ii. Revoked the Transitional Tax Regime (RTT), introduced by Law 11941, of May 27, 2009.

 

  iii. Provide for the taxation of the earnings of legal entities domiciled in Brazil, with respect to the earnings from foreign subsidiaries and associates and the earnings received by an individual resident in Brazil through a controlled foreign legal entity.

 

  iv. Provides for other measures.

 

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Table of Contents

The provisions of said law came into effect in calendar year 2015 and it is being adopted by the subsidiary where applicable. There were no significant impacts arising from the enactment of the new law.

 

     12/31/2015      12/31/2014  
     (unaudited)         

ISSQN - Tax assessment

     16.117         14.941   

Related taxes

     2.435         13.804   

Economic Intervention Contribution (CIDE)

     —           —     

IRRF PF/PJ

     —           1.743   

State VAT (ICMS)

     131         137   

ISSQN

     —           2.547   

Current income tax and social contribution

     187         3.435   

Withholding social contribution

     —           1.923   

Total

     18.870         38.530   
  

 

 

    

 

 

 

 

15. RELATED PARTIES

 

  15.1. GDF Suez Group

The subsidiary is a party to an agreement entered into with Leme Engenharia Ltda., a GDF Suez Group company.

The purpose of the agreement is the: (a) preparation of the basic project of UHE Jirau and its consolidated basic project; (b) technical advisory services to assist the subsidiary with the preparation of asset supply and service provision agreements entered into with UHE Jirau; and (c) engineering and technical advisory services for the implementation of UHE Jirau. The total contractual amount, including the related addenda, is R$303,423 (R$290,819 as at December 31, 2014). Beginning April 2008, the amounts set out in the agreement are adjusted upward or downward on an annual basis based on the IPCA. Of the total adjusted contractual amount, R$336,766 was realized through December 2015 (R$302,870 up to the end of 2014). As at December 31, 2015, the remaining adjusted contractual amount with Leme Engenharia Ltda. is R$13,291 (R$36,417 as at December 31, 2014). The contractor’s engineering activities will be performed during the construction works, until their completion.

The subsidiary is also a party to an agreement entered into with Tractebel Engineering, under the name of Coyne Et Belier. The purpose of the agreement is the provision of consulting services for control and monitoring of manufacturing and delivery of turbines. The total contractual amount, including the related addenda, is €10,378 thousand (€9,838 thousand as at December 31, 2014). Of such amount, €10,378 thousand, corresponding to R$46,025 was realized through December 31, 2015 (€9,465 thousand corresponding to R$25,916 through the end of 2014). As at December 31, 2015, there was no remaining balance in the agreement (as at December 31, 2014, there was no balance, since the addendum was entered into in January 2015).

 

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The balances relating to the abovementioned related parties, which were already realized and pending payment, are accounted for as “Trade payables” in Note 16, which totals the amount of R$3,119 as at December 31, 2015 (R$5.220 as at December 31, 2014).

 

  15.2. Receivables from power sale revenue - ACL

Under the financing agreement entered into with BNDES (Note 20), the subsidiary entered into with the Company’s shareholders power sale agreements determining that, if the subsidiary failed to sell its power targeted to the ACL, the Company’s shareolders would acquire such power proportionally to their interests in the capital of ESBR Participações S.A. at a specific price agreed upon among the parties, annual adjusted based on the IPCA.

Below is the description of intragroup power sale transactions (Note 29). In 2015 the subsidiary conducted power sale transactions with the Company’s related parties (Note 6). There were no such transactins in 2013 (unaudited):

 

     12/31/2015      12/31/2014  
     (unaudited)         

Geramamoré Participações e Comercializadora de Energia Ltda. (GDF Suez group company)

     62.656         26.920   

Companhia Hidro Elétrica do São Francisco - Chesf

     20.887         8.974   

Eletrosul Centrais Elétricas S.A.

     20.887         8.974   
  

 

 

    

 

 

 
     104.430         44.868   
  

 

 

    

 

 

 

 

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Table of Contents

Revenue from related parties:

In 2015 and 2014, the subsidiary conducted the following power sale transactions with the Company’s related parties (Note 25). There were no such transactins in 2013 (unaudited):

 

     12/31/2015      12/31/2014  
     (unaudited)         

Geramamoré Participações e Comercializadora de Energia Ltda. (GDF Suez group company)

     640.639         89.712   

Companhia Hidro Elétrica do São Francisco - Chesf

     213.544         30.301   

Eletrosul Centrais Elétricas S.A.

     213.544         29.904   
  

 

 

    

 

 

 
     1.067.727         149.917   
  

 

 

    

 

 

 

 

  15.3. Sales to related parties of Eletrobras Group - ACR

As mentioned in Note 1, 70% of the guaranteed energy of UHE Jirau in the 2008 Auction amd 100% of the guaranteed energy of the expansion of UHE Jirau was sold in the Regulated Contracting Environment (ACR), at the adjusted price of R$110.17 per MWh for A-5 (2008) and R$124.09 for A-3 (2011).

The power volumes sold to Eletrobras Group companies and the revenue recognized are as follows:

2008 A-5 Auction

 

Eletrobras subsidiary

   (in MWh)
2015
(unaudited)
     (in thousands
of Brazilian
reais) - 2015
     (in MWh)
2014
     (in thousands
of Brazilian
reais) - 2014
 

Companhia Energética de Alagoas - Ceal

     156.684,06         16.354         84.325,28         8.239   

Companhia Energética do Piauí - Cepisa

     74.720,55         7.799         24.205,91         2.365   

Centrais Elétricas de Rondônia S.A. - Ceron

     247.516,33         25.477         85.325,53         8.229   

Companhia de Eletricidade do Acre - Eletroacre

     89.892,65         9.253         25.415,59         2.451   

Manaus Energia S.A.

     461.117,10         47.944         204.645,19         19.913   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1.029.930,69         106.827         423.917,50         41.197   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

2011 A-3 Auction

 

Eletrobras subsidiary

   (in MWh)
2015
     (in thousands of
Brazilian reais) -
2015
 

Manaus Energia S.A.

     111.343,38         13.817   
  

 

 

    

 

 

 

 

  15.4. Cost of power with related parties

Of the total balance payable to transmission companies in the amount of R$9,146 recorded in “Trade payables” (Note 16), R$1,066 refers to Chesf. As at December 31, 2015, the Company did not have any balance payable to Eletrosul (R$108 as at December 31, 2014).

The costs on the power sold related to the transmission companies related to sector charges on the use of the transmission system of UHE Jirau, in the total amount of R$520,188, which is recorded in “Charges for the use of the power grid” (Note 30), R$34,372 (R$8,676 as at December 31, 2014) refers to Chesf and R$36,361 (R$10,252 as at December 31, 2014) refers to Eletrosul.

 

16. MANAGEMENT COMPENSATION

 

  16.1. Compensation and benefits

Below is the cost of compensation and benefits:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Profit or loss

        

Compensation

     11.356         10.687         8.977   

Charges

     2.376         31         —     

Benefits

     3.018         752         636   
  

 

 

    

 

 

    

 

 

 

Total profit or loss

     16.750         11.470         9.613   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Property, plant and equipment – Accumulated amounts

        

Compensation

     14.786         12.622         16.265   

Charges

     7.609         6.786         —     

Benefits

     1.566         1.255         1.028   
  

 

 

    

 

 

    

 

 

 

Total PP&E

     23.961         20.663         17.293   
  

 

 

    

 

 

    

 

 

 

Management compensation and benefits included in property, plant and equipment in 2015 corresponds to R$3,298 - unaudited (R$3,370 as at December 31, 2014).

 

  16.2. Defined contribution plans

A defined contribution plan is a postemployment benefit plan whereby an entity pays fixed contributions to a separate entity (pension fund) and will not have any legal or constructive obligation to pay additional amounts. Contribution to defined contribution pension plans are recognized as management and employee benefit expenses in profit or loss for the years during which services are provided by management and employees.

 

     12/31/2015      12/31/2014  
     (unaudited)         

Profit or loss:

     

Pension plan - management

     260         238   

Pension plan - employees

     638         719   

 

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Table of Contents
17. FINANCING

 

            Annual                     
                         12/31/2015     12/31/2014  
     Currency      charges     Maturity      (unaudited)        

BNDES

   R$           TJLP+2.25     January/2035         5.665.961        5.679.389   

Banco do Brasil

   R$           TJLP+2.65     January/2035         1.613.231        1.615.306   

Caixa Econômica Federal

   R$           TJLP+2.65     January/2035         1.613.231        1.615.306   

Bradesco BBI

   R$           TJLP+2.65     January/2035         1.161.535        1.163.029   

Itaú BBA

   R$           TJLP+2.65     January/2035         1.088.928        1.090.329   

Banco do Nordeste do Brasil

   R$           TJLP+2.65     January/2035         239.897        244.323   
          

 

 

   

 

 

 

Subtotal

             11.382.783        11.407.682   

Borrowing costs

             (82.926     (82.933
          

 

 

   

 

 

 

Total

             11.299.857        11.324.749   
          

 

 

   

 

 

 

Principal and charges

             306.017        313.225   

(-) Borrowing costs

             (4.604     (4.618
          

 

 

   

 

 

 

Total current

             301.413        308.607   
          

 

 

   

 

 

 

Principal and charges

             11.076.766        11.094.457   

(-) Borrowing costs

             (78.322     (78.315
          

 

 

   

 

 

 

Total noncurrent

             10.998.444        11.016.142   
          

 

 

   

 

 

 

Total current and noncurrent

             11.299.857        11.324.749   
          

 

 

   

 

 

 

On June 29, 2009, the subsidiary entered into a financing agreement with the BNDES, in the amount of R$7,220,000.

 

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On September 14, 2012, the subsidiary entered into the supplementary credit agreement to support investments for the expansion of UHE Jirau, in the amount of R$2,325,000, totaling R$9,545,000 as financing.

The financing is divided in two tranches:

 

  (a) Direct financing with BNDES, in the amount of R$4,797,500; and

 

  (b) Financing as onlending, through a pool of banks, comprised of Banco do Brasil, Caixa Econômica Federal, Banco do Nordeste do Brasil, Bradesco and Itaú BBA, in the amount of R$4,747,500.

Collaterals offered are:

 

  (a) Pledge of subsidiary’s shares : the Company carries out a first-priority pledge of all Subsidiary’s shares, both current and future, as well as its rights, on behalf of lenders;

 

  (b) Collateral assignment of rights arising form the concession and receivables : the subsidiary itself assigns these rights on behalf of lenders;

 

  (c) Pledge of dividends and interest on capital : the Parent GDF Suez Energy Latin America Participações Ltda., pledges on, second-priority basis, the total dividends and interest on capital, both current and future, arising from its dequity interest in Tractebel Energia S.A. Such collateral will expire upon full settlement of the financing;

 

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  (d) Collateral assignment of project agreements and performance bonds : the subsidiary itself assigns material project agreements of UHE Jirau, as well as related performance bonds, to lenders. It enables lenders to assume the construction work of UHE Jirau in case of default by the subsidiary; and

 

  (e) Collateral assignment of rights arising from the support agreement and supporting deficit account: the Company assigns the receivables arising from its ownership arising from the shareholders’ support agreement. This agreement determines that the Company’s shareholders shall contribute to such company, upon subscription and payment of capital, funds in the case of occurrence of events that may give rise to fund insufficiency for implementation of Jirau Project.

Shareholders GDF Suez Energy Latin America Participações Ltda., Companhia Hidro Elétrica do São Francisco (Chesf), Eletrosul Centrais Elétricas S.A.(Eletrosul) and Mizha Energia Participações S.A. (Mitsui group) are held liable, until the end of settlement of the obligations to lenders, proportionally to their equity interests, for the full performance thereof or until the full operation of the project, which is scheduled to take place in 2016.

BNDES, through Notice 233/2014 - BNDES AIE/DEENE, postponed the debt service reserve account establishment date from August 15, 2014 to August 15, 2015, through the posting of a bank guarantee.

On November 21, 2014, pursuant to addendum 5 to the credit facility agreement for financing through onlending of funds from BNDES nº 21/00398X, the subsidiary received authorization to establish a debt service reserve account through the bank letter of guarantee and/or deposit in financial resources.

On August 14, 2015, BNDES, through letter 248/2015 - BNDES AIE/DEENE, approved the extension for the full satisfaction in cash of the debt service reserve account from August 15, 2015 to October 15, 2015. Consequently, on October 15, 2015, through letter 308/2015 - BNDES AIE/DEENE, BNDES has again approved the change in the date of satisfaction of the debt service reserve account from Octoner 15, 2015 to August 15, 2016. Beginning November 15, 2015 up to July 15, 2016, the subsidiary is required to deposit in the reserve account, on a monthly basis, the minimum amount of R$20,000.

Accordingly, as at December 31, 2015, the subsidiary had a guarantee, in the amount of R$224,682, issued by Banco Safra S.A and an additional amount of R$61,621 (R$10,612 as at December 31, 2014), invested in federal government bonds yielding interest of 94.55% of the average Interbank Deposit (CDI) rate. Such investment correspond to 21.52% of the total breakdown between the letter of guarantee and reserve account. Note that this amount is classified as “Securities – reserve account” (Note 5).

The financing agreement also determine that, if the subsidiary fails to sell its power allocated to the ACL, the Company’s shareholders would acquire such power proportionally to their interests in the Company’s capital at a given price agreed upon among the parties, which fact was consummated; the power sale agreements (allocated to the ACL) entered into shareholders GDF Suez (through Geramamoré Participações e Comercializadora de Energia Ltda.), Eletrosul Centrais Elétricas S.A. and Companhia Hidro Elétrica do São Francisco—Chesf are effective. The other shareholder Mizha Energia Participações S.A. (Mitsui group) did not enter into any power purchase agreement (allocated to the ACL), and its portion was allocated to GDF Suez. The amounts receivable and revenue recognized relating to such transactions are described in Note 18.2.

 

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Pursuant to the abovementioned agreement, the subsidiary must maintain a capitalization ratio (equity/total assets) equal to or above 20% up to December 31, 2016 and equal to or above 25% in the subsequent period. As at December 31, 2015, the subsidiary has a capitalization ratio (equity/total assets) of 28.6% (32.7% as at December 31, 2014).

During the financing repayment period, the subsidiary must maintain the debt service coverage ratio (ICSD) of at least 1.2, pursuant to clause 15 of the aforementioned agreement. Such ratio is calculated based on the Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA/debt service ratio (repayment of principal + interest payment), based on information reported in the financial statements audited by firms registered with the Brazilian Securities and Exchange Commission (CVM), on annual basis. Accordingly, such ratio will only be determined as at December 31, 2015.

As at December 30, 2014 and 2015, the subsidiary obtained from the National Bank for Economic and Social Development (BNDES) and other onlending banks, the waiver not to meet the ICSD in 2014 and 2015.

 

    Releases in 2015

The tenth, eleventh and twelveth release of funds within the scope of the financing agreement through onlending 21/00794-2 (direct supplementary financing agreement), whose withdrawals occurred in February, June and November 2015, respetively, were allocated to tranche H and totaled R$160,000.

The variation in financing from January 1 to December 31, 2015 (unaudited) was as follows:

 

     Current      Noncurrent      Total  

Balance as of December 31, 2014

     308.607         11.016.142         11.324.749   
  

 

 

    

 

 

    

 

 

 

Inflows

     —           160.000         160.000   

Transfers

     1.129.704         (1.129.704      —     

Payment (interest)

     (892.421      —           (892.421

Payment (principal)

     (244.491      —           (244.491

Interest in profit or loss

     —           587.919         587.919   

Capitalized interest

     —           363.907         363.907   

Commissions

     14         180         194   
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     301.413         10.998.444         11.299.857   
  

 

 

    

 

 

    

 

 

 

 

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Below is the financing repayment schedule as at December 31, 2015, including borrowing costs (unaudited):

 

2016

     306.017   

2017

     293.343   

2018

     321.170   

2019

     351.638   

2020

     385.007   

2021-2035

     9.725.608   
  

 

 

 

Subtotal

     11.382.783   

Borrowing costs

     (82.926
  

 

 

 

Total

     11.299.857   
  

 

 

 

 

18. PUBLIC ASSET USE PAYABLE (“UBP”)

Upon startup of operation of the first generation unit, the subsidiary is required to reimburse the federal government for the UBP in the annual adjusted amount of R$12,484 (R$10,757 as at December 31, 2014), paid in 12 monthly installments of R$1,040, annually adjusted in August based on the IPCA fluctuation (inflation). The costs on UBP will be due up to the end of the concession arrangement of UHE Jirau, on August 12, 2043.

Financial charges on the UBP liability will no longer be capitalized but the capitalized balance will rather be amortized. The adjustment at present value of the related liability is recognized as finance costs.

The changes in the public asset use balance from January 1 to December 31, 2015 (unaudited) were as follows:

 

     Current      Noncurrent      Total  

Balance as of December 31, 2014

     10.757         109.674         120.431   
  

 

 

    

 

 

    

 

 

 

Inflation adjustment

     —           15.845         15.845   

Transfers

     13.485         (13.485      —     

Repayment of principal

     (11.758      —           (11.758
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     12.484         112.034         124.518   
  

 

 

    

 

 

    

 

 

 

 

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The changes in the public asset use balance from January 1 to December 31, 2014 were as follows:

 

     Current      Noncurrent      Total  

Balance as at 12/31/2013 (unaudited)

     10.699         104.669         115.368   

Inflation adjustment

     —           15.994         15.994   

Transfers

     10.989         (10.989      —     

Repayment of principal

     (10.931      —           (10.931
  

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2014

     10.757         109.674         120.431   
  

 

 

    

 

 

    

 

 

 

 

19. PROVISION FOR ENVIRONMENTAL COSTS

In order to satisfy this provision, the Company accounted for at present value the costs on environmental programs; the amounts were recorded in property, plant and equipment (those arising from the implementation stage) and in intangible assets (those arising from the operating stage) and their balancing items are recorded in liabilities.

The variation in the use of the provision for environmental costs from January 1 to December 31, 2015 (unaudited) was as follows:

 

     Current      Noncurrent      Total  

Balance as of December 31, 2014

     107.403         476.519         583.922   
  

 

 

    

 

 

    

 

 

 

Inflation adjustment

     —           47.445         47.445   

Transfers

     72.380         (72.380      —     

Repayment of principal

     (53.832      —           (53.832
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     125.951         451.584         577.535   
  

 

 

    

 

 

    

 

 

 

 

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20. PROVISION FOR CONTINGENCIES

 

     Note      12/31/2015      12/31/2014  
            (unaudited)         

Current

        

Labor

     23.1.1         1.977         3.721   

Total current

        1.977         3.721   
     

 

 

    

 

 

 

Noncurrent:

        

Tax - ISSQN - success fee

        —           864   

Tax - ICMS

     23.1.2         769.551         555.355   

Liability exclusion

     23.1.3         2.555.291         1.933.330   

Provision for EUST

     23.1.4         414.701         138.964   
     

 

 

    

 

 

 

Total noncurrent

        3.739.543         2.628.513   
     

 

 

    

 

 

 

Total

        3.741.520         2.632.234   
     

 

 

    

 

 

 

Below is the changes in the provision for risks from January 1 to December 31, 2015 (unaudited):

 

     Tax     Labor    

Exemption

claim

     Provision
for EUST
     Total  

Balance as 12/31/2014

     556.219        3.721        1.933.330         138.964         2.632.234  

Recognitions

     113.303        1.901        362.481         248.857         726.542  

Payments

     (864     —          —           —           (864

Reversals

     —          (3.703     —           —           (3.703

Inflation adjustment

     100.893       58       259.480        26.880        387.311  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     769.551        1.977        2.555.291         414.701         3.741.520  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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20.1.1. State VAT (ICMS)

In accordance with Article 6 of the Rondônia State Decree 8321/1998, as supported by Arrangement 55/93, those operations listed in Attachment I thereto would be exempt from ICMS. Article 74 of such Attachment establishes that the import and interstate receipt of new goods having no similar locally-made counterparts in Rondônia State and intended to be part of a manufacturing unit’s property, plant and equipment are exempt from ICMS.

In accordance with article 74 of Attachment I, the subsidiary claimed the exemption of the ICMS rate differential levied on the purchase of domestic equipment, as well as exemption from ICMS on the purchase of imported pieces of equipment.

On April 26, 2011, Rondônia State issued Decree 15858, which annulled item 74, table 1, of Attachment 1 to Decree 8321/1998 on a retrospective basis, since no ICMS Agreement had been approved at the National Council of Finance Policy (CONFAZ) level that would permit the granting of such tax benefit.

However, such decree was fully judged as unconstitutional by the Court of Justice of the State of Rondônia, in a Direct Unconstitutionality Action brought by the Industry Association of the State of Rondônia on April 7, 2014 determining the unconstitutionality of all provisions set out in Decree 15858/11, consequently recovering the benefit set out in item 74 of table 1 of the Appendix 1 to Decree 8321/98. On October 28, 2014, the last appeal filed by the State of Rondônia was denied, ultimately upholding the decision handed down on April 7, 2014. Such decision was made final and unappealable and the lawsuit was dismissed.

Concurrently with the abovementioned lawsuit, and due to the uncertainty caused by the inconsistency of the applicable regulatory standards, on September 27, 2012, the subsidiary filed a Declaratory Action, with a plea for injunction, so as to obtain the confirmation of application of the ICMS exemption benefit set forth in item 74 of table 1 of the Exhibit I to Decree 8321/98.

On July 23, 2013, the Advanced Relief was approved (subsequently ratified on January 8, 2014), so as to suspend the collection of the ICMS-related tax credit calculated in a period prior to April 27, 2011, arising from the annulment of the exemption of property, plant and equipment items without any similar measure in the State, while the injunction granted within the scope of ADI 0009603-94.2012.8.22.0000 remained valid (brought by FIERO).

Notwithstanding the history of favorable decisions in summary cognizance and in the merit with respect to the ADI brought by FIERO, on August 6, 2014, a decision determining the invalidity of the Declaratory Action brought by the subsidiary was published, based on the allegation that the decree of the executive branch that grants the ICMS exemption cannot be considered as the legal instrument for such granting, since the exemption could only be created through a law and supported by an agreement with CONFAZ.

In light of such decision, the subsidiary filed an appeal, which was fully received with double effect, alleging, among others: (i) the contradictory behavior of the State and impossibility of the State benefiting from the challenge of an act issued by itself and applied to the case in caption with

 

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respect to the subsidiary; and (ii) need to balance the effects of the recognition of unconstitutionality in light of the good faith and the principle of legal relief, defending that the Decree’s recognized illegality must be effective as from the date it is declared within the legal scope. The decision handed down on August 6, 2014 is currently suspended and pending decision with respect to the appeal in caption.

The subsidiary accounts for the ICMS in ‘Provision for tax risks’, totaling R$769,551 as at December 31, 2015 (R$555,355 as at December 31, 2014), of which R$553,416 (R$360,206 as at December 31, 2014) relating to the tax rate difference - DIFAL and R$216,135 (R$195,147 as at December 31, 2014) to the ICMS on imports.

20.1.2 Exemption claim

The provision for exemption claim contingency, in the amount of R$2,555,291, (R$1,933,330 as at December 31, 2014) derives mainly from the precarious nature of the effective injunction, as previously mentioned in Note 12.2. If the injunction is suspended upon the handing down of a decision unfavorable to the subsidiary, CCEE will account for again power purchase and sale transactions in the period and the subsidiary will be required to settle such obligation.

In this case, an additional volume of power under the regulated environment electricity sale agreements (CCEARs) must be delivered. The past months will be accounted for again: the additional amounts of each month will be settled at the spot price, PLD, of the respective month. On the other hand, the new accounting for and additional delivery of volume from the past months will entail a bilateral billing of the amounts to the distribution companies, at the prices of each agreement.

The provision amount was based on (i) monthly power volumes accounted for again at the Electric Power Commercialization Chamber (CCCE), at the difference settlement price (PLD) used in each month and the regulated environment electricity sale agreements (CCEARs), as well as (ii) the amount of settlement of the exposure for the period in question, for which no power purchase was made through a bilateral agreement. No payment of penalties due to exposure as a result of the subsidiary’s consent was considered during the injunction period.

For further information regarding the liabilities exemption claim, please see explanatory note 33.

 

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20.1.3 Provision for transmission system use fee (EUST)

The provision for operational contingency, in the amount of R$414,701 (R$138,964 as at December 31, 2014), derives from the accounting for the EUSTs contracted and not used due to delays in the transmission lines necessary for the delivery of power generated by UHE Jirau. The accounting for such amounts is suspended a sa result of the lower court decisions handed down, as mentioned in Note 23.1.3. If the court ruling is suspended or reversed upon the handing down of a decision unfavorable to the subsidiary, the National Electric System Operator (ONS) must charge the monthly EUST amounts from the generation units in operation relating to the months contracted and not used, subject to the matching of the EUST payment as from the startup of operations of the LT Porto Velho-Araraquara C.1 (Bipolo I).

 

  20.2. Lawsuits classified for which no provision is recognized

 

     31/12/2015      31/12/2014  
     (unaudited)         

Civil, criminal and administrative

     209.802         183.440   

Labor

     31.113         15.398   

Tax

     20.587         18.134   
  

 

 

    

 

 

 

Total

     261.502         216.972   
  

 

 

    

 

 

 

There are 81 lawsuits and administrative proceedings of civil and tax nature (77 as of December 31, 2014 for which no provisions have been recognized and are estimate to have a total assessed as possible loss exposure of R$209,802 (R$183,440 as of December 31, 2014) related to civil, criminal and administrative lawsuits and R$ 20,587 related to tax suits (R$18,134 as of December 31, 2014), totaling R$ 230m389 (R$201,574 as at December 31, 2014) . Of this total, R$41.7 million (R$36 million as at December 31, 2014) is related to administrative proceedings, which also rely on a final decision-making level at the judiciary branch No provisions have been recognized for any of these lawsuits, legal proceding and claims because management believes, in consultation with the Company’s legal counsel, they do not currently result in present obligations (legal or constructive) of the Company as a result of past events.

 

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21. REGULATORY AND SECTOR CHARGES

 

     12/31/2015      12/31/2014  

Description

   (unaudited)         

GSF (Generating Scaling Factor) (a)

     374.478         —     

Concessionaires and assignees (b)

     304.675         —     

EUST – power plant (a)

     63.768         27.610   

Use of water resources (CFRH) (b)

     7.994         4.033   

ANEEL inspection fee (TFSEE) (c)

     —           15   

Other

     —           51   
  

 

 

    

 

 

 
     750.915         31.709   
  

 

 

    

 

 

 

 

  (a) GSF - Generating scaling factor:

The Brazilian Association of Independent Power Producers (Apine), in the name of its members, including the subsidiary, filed a lawsuit against ANEEL claiming ANEEL to determine CCEE to conduct the re-recording, since January, of the power volumes allocated to the hydroelectric power plants of their members, making sure that each one monthly reaches:

 

  (i) Power volume corresponding to 100% of the physical guarantee level of its hydroelectric power plants comprising the MRE; or, alternatively;

 

  (ii) Power volume corresponding to 95% (noventa e cinco por cento) of the physical guarantee level of its hydroelectric power plants comprising the MRE; or, alternatively;

 

  (iii) Power volume corresponding the total generation of MRE had there not been (iii.a) advance of physical guarantee of the structuring projects , (iii.b) thermal power generation outside the economic scope, (iii.c) generation of reserve power and (iii.d) power import.

It also requests items (i), (ii) or (iii), mentioned above to be guaranteed in advance until the final and unappealable decision on the lawsuit.

In summary, Apine, in th ename of associate members, seeks the suspension of recording of the costs incurred by hydroelectric generation companies, arising from the application of the GSF—Generation Scaling Factor, since the problems in the hydroelectric generation sector in the current scenario arises both from structural and conjunctural factors.

 

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The GSF represents an index that expresses the ratio between the sum of the total power produced by the hydroelectric power plans comprising the Power Rellocation Mehcanism (MRE) and the sum of the physical guarantees of the plants. Between 2005 and 2012, the annual GSF of the MRE remained on average above 100%, not encumbetring the hydroelectric power generation companies. Beginning 2013, this scenario was reversed, and seriously aggravated in 2014, when it was below 100% during the year, which fact was repeated in 2015. The GSF below 100% required the generation companies to adjust their physical guarantee within the scope of the MRE, which was below the volume of their power sale agreements and which required generation companies to acquire the missing power at free market price.

On July 1, 2015, Court Ruling 2015-A (“Injunction”) was handed down so that ANEEL, until the judgment of the lawsuit refered to above, abstain from applying the GSF factor on the Physical Guarantee of the companies represented by APINE for purposes of recording within the scope of the CCEE. The injunction is valid as from the operations relating to may 2015. The total adjustment to the accounting for the transactions of the subsidiary at the CCEE as a result of the injunctions from the GSF for the period between May and November 2015 is R$367,361, which will be paid through settlement at CCEE.

Since 2014, the generation companies of the MRE were subject to the reduction of the hydroelectric power generation in the system and subsequent impact on their physical guarantee due to the growth of the GSF. These losses are only due to the water availality conditions of the system, but also to a questionable management of such resource. Accoddingly, the generation companies of the MRE sought a war to be reimbursed for such losses, firstly through administrative method and, subsequrntly, through legal method.

The various injunctions resulted in the interruption of the short-term market. Law 13.203/2015 introduced a proposal for the renegotiation of the hydrological risk, both at the ACR and ACL, for all hydraulic generation companies in the MRE. Such law was regulated by Regulatory Instruction 684/2015, which introduced 25 renegotiation options at the ACR and 1 option at the ACL.

Generation companies that joined the renegotiation mus cancel ongoing lawsuits (abovementioned injunctions) and advance, as a way to maintain the financial balance of the market, the risk premium negotiated due to the GSF reimbursed in 2015.

On January 15, 2016, the subsidiary sent hydrological risk renegotiation proposals to Aneel, one for CCEARS A-5 / 2008 and another for CCEARS A-3 / 2011 where the subsidiary will be entitled to reimbursement in the amount of R$183,556 related to the GSF expense in 2015. The product selected by the subsidiary was SP090. To this end, the subsidiary must pay a risk premium related to 2015 in the amount of R$14,008. Accordingly, the subsidiary recorded a prepaid expense during 2015 of R$169,548.

 

  (b) Concessionaires and assignees – Amount related to the balance of power monthly determined by CCEE.

 

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  (c) Refers to the provision for the EUST of the plant, based on the Transmission System Use Agreement entered into with ONS to use the basic grid transmission facilities. Resolution 267/07 established the methodology and guidelines for the adoption of fixed tariffs over the first ten years of operation by the plants participating in the the new power auctions. Resolution 559/13 determined that, at the end of the first ten years of fixed tariffs, the Transmission System Use Tariff (TUST) will be calculated as the TUST average amount projected for the next ten years, including the information on the basic grid expansion in the ten-year plan for the current year. The new tariff will be effective for the next ten tariff cycles.

 

  (d) The Water Resource Use Financial Compensation (CFRH) was introduced by the Federal Constitution of 1988 and refers to a percentage paid by the power generation concessionaires for the use of the water resources. ANEEL manages the collection and distribution of the resources among the beneficiaries: states, municipalities and direct federal administration bodies.

 

  (e) The ANEEL Inspection Fee (TFSEE) is the annual rate established by ANEEL (Decree 2410/97) equivalent to 0.4% of the economic benefit accrued by the company in the development of power services and facilities. The TFSE is calculated according to the following formula: TFSEE = 0.4% x PInstx (annual average of installed capacity—in KW and BE (economic benefit for independent producers which, in 2014, was R$470.63/installed KW). The amount is divided in twelve installments and paid on a monthly basis up to the 15 th day of the subsequent month to the National Treasury.

 

22. OTHER CURRENT LIABILITIES

 

  22.1. Other current liabilities are broken down as follows:

 

     12/31/2015      12/31/2014  
     (unaudited)         

R&D

     12.304         4.313   

Attorneys’ fees and court costs

     8.757         —     

Payables - banks

     8.500         —     

Costs on environmental monitoring

     492         1.715   

Lease

     158         432   

Payables – distribution companies

     —           2.154   
  

 

 

    

 

 

 

Total

     30.211         8.614   
  

 

 

    

 

 

 

 

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23. ADVANCE FOR FUTURE CAPITAL INCREASE

 

     12/31/2015      12/31/2014  
     (unaudited)         

Advance for future capital increase (AFCI)

     457.000         —     

Inflation adjustment—AFCI

     20.691         —     
  

 

 

    

 

 

 

Total

     477.691         —     
  

 

 

    

 

 

 

As approved at the meetings of the Board of Directors, held on June 2, June 24, July 30, August 14 and November 26, 2015, the partial capital contribution schedules relating to June, July, August, September and December 2015, were approved, whose funds were transferred by the shareholders of ESBR Participações, as advance for future capital increase.

From June 15 to December 31, 2015, advances for future capital increase were made by the shareholders of ESBR Participações, in the total amount of R$457,000. The Company adjusted for inflation the advances for future capital increase based on the CDI rate, the total inflation adjustment amount being R$20,691 through December 31, 2015 (unaudited), as follows:

 

     12/31/2015 (unaudited)  
     GDF Suez      Mizha      Chesf      Eletrosul      Total  

Balance as at 12/31/2014

     —           —           —           —           —     

Recognitions

     210.400         105.200         105.200         36.200         457.000   

Inflation adjustment

     9.550         4.538         4.775         1.828         20.691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2015

     219.950         109.738         109.975         38.028         477.691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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24. RESEARCH & DEVELOPMENT

 

     12/31/2015      12/31/2014  
     (unaudited)         

Research & development

     2.883         —     
  

 

 

    

 

 

 

The balance of Research & Development in noncurrent liabilities refers to the completion of the Project R.O.S.A – Robot for Operations in Flooded Stoplogs – which is pending appraisal and approval by ANEEL to be included in fixed assets.

 

25. EQUITY

 

  25.1. Capital

The Company is authorized to increase its capital up to the limit of R$12,000,000, as approved by the Board of Directors, regardless of any amendment to the bylaws. The Company’s subscribed and pain-in capital amounts to R$9,131,711, divided into 9,131,711,000 book-entry common shares, without par value (R$8,681,711, represented by 8,681,711,000 common shares as at December 31, 2014).

ESBR Participações S.A.’s equity interest is held as follows:

 

     Equity interest (%)  

GDF Suez Energy Latin América Participações Ltda.

     40,0   

Mizha Energia Participações S.A.

     20,0   

Eletrosul Centrais Elétricas S.A.

     20,0   

Companhia Hidro Elétrica do São Francisco - Chesf

     20,0   
  

 

 

 

Total

     100,0   
  

 

 

 

 

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In order to comply with the capitalization ratio, referred to in Note 20, and finance the UHE Jirau’s construction work, shareholders contributed R$450,000 to the Company’s capital from January 1 to December 31, 2015. Pursuant to Note 13, the Company contributed the same amount to its subsidiary.

 

  25.2. Shareholders’ committments

According to the obligations set forth in clause five of the Company’s Shareholders’ Agreement, the shareholders agree, proportionally to their equity interest, to subscribe and pay the capital according to the Capital Contribution Schedule.

In the event any shareholder fails to contribute to the Company the subscribed capital, the other shareholders, after five business days from such noncompliance, will be entitled to, proportionally to their equity interest (excluding the defaulting shareholder’s equity interest): (i) comtribute such portion of the capital; (ii) acquire the shares already paid; and/or (iii) acquire the shares not paid.

The Company’s shareholders agree to not sell their shares, except if approved by the other shareholders.

The Company’s shareholders agree to, within two years after the startup of operations of the UHE Jirau’s last generation unit, adopt all measures to obtain the Company’s registration as a publicly-held company with the Brazilian Securities and Exchange Commission (CVM) to trade shares at the Novo Mercado segment of the São Paulo Stock Exchange.

 

26. NET OPERATING REVENUE

Upon delivery of the power volume under the CCEARs, the subsidiary started to recognize operating revenue. The volume delivered under the CCEARs accounted for 70% of the physical guarantee of the generation units in operation, as set forth in the injunction (referred to in Note 23).

In addition to the revenue arising from delivery under the CCEARs, the subsidiary recorded revenue from the delivery under purchase and sale agreements entered into with related parties (Note 18.2) and from the settlement of the CCEE power surplus.

The subsidiary’s reconciliation between gross and net sales revenues is broken down below.

 

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Charges in the periods:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Gross operating revenue:

     2.686.672         816.069         163.649   
  

 

 

    

 

 

    

 

 

 

Power supply - ACR - power distribution companies

     1.177.098         411.359         13.757   

Power supply - ACL – related parties

     1.067.727         149.917         —     

Transactions under the CCEE

     356.673         254.793         149.892   

Bilateral agreements - ACL

     85.174         —           —     

Deductions from operating revenue:

     (273.726      (83.430      (16.644
  

 

 

    

 

 

    

 

 

 

COFINS

     (204.187      (62.490      (12.455

PIS

     (44.330      (13.567      (2.704

Investments - R&D

     (24.140      (7.373      (1.485
        

 

 

 

Annulment of power sale

     (1.069      —           —     

Net operating revenue

     2.412.946         732.639         147.005   
  

 

 

    

 

 

    

 

 

 

 

27. BREAKDOWN OF OPERATING COSTS BY NATURE

In order to record the costs on the power sold, i.e., the costs directly related to power generation, the subsidiary adopted as cost recognition method the number of generation units in operation and, as at December 31, 2015, the subsidiary had 37 generation units in operation (20 generation units as at December 31, 2014), while for costs related to commercial matters, the subsidiary considered 100% of them.

 

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At at December 31, 2015, the operating costs are broken down as follows:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Cost on power sold:

        

Provision for power contingency and EUST (Note 21)

     897.698         1.915.094         157.519   

Power grid charges

     520.188         171.640         4.806   

Depreciation and amortization

     433.313         122.601         4.798   

Costs of transactions at CCEE

     304.675         —           —     

GSF (Generating Scaling Factor)

     204.930         —           —     

Financial compensation for the use of water resources (CFURH)

     66.329         17.460         —     

Personnel costs

     18.016         4.945         76   

Power Service Inspection Fee (TFSEE)

     5.047         187         —     

UBP amortization

     3.868         2.429         36   

Purchased power

     —           —           119.865   

Other operating expenses

     3.350         5.089         327   
  

 

 

    

 

 

    

 

 

 

Total

     2.457.414         2.239.445         287.427   
  

 

 

    

 

 

    

 

 

 

 

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General and administrative expenses are broken down as follows:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Personnel

     31.935         35.212         29.615   

Management

     16.750         11.470         9.613   

Insurance

     73.595         4         —     

Contingencies – labor and tax

     61.237         3.186         —     

Outside Services

     56.222         40.504         20.447   

ISSQN tax assessment notice, fine and other expenses on social compensation

     18.875         1.511         —     

Allowance for doubtful debts

     17.085         924         6.173   

Depreciation and amortization

     15.612         809         413   

Building upkeep and conservation

     8.747         2.012         —     

Materials

     5.547         7.670         1.065   

Rents

     5.463         1.508         1.508   

Equipment maintenance and conservation

     5.214         4.849         1.526   

Travel

     3.224         3.525         3.847   

Contributions

     2.082         48         8   

Taxes

     1.548         6.622         114   

Sector contributions

     1.669         540         43   

Vehicles

     1.398         3.093         2.325   

UBP

     —           3.845         —     

Other

     5.059         5.551         6.704   
  

 

 

    

 

 

    

 

 

 

Total

     331.262         132.883         83.401   
  

 

 

    

 

 

    

Classified as:

        

Personnel

     31.935         35.212         29.615   

Management (Note 17)

     16.750         11.470         9.613   

Administrative costs

     282.577         86.201         44.173   
  

 

 

    

 

 

    

 

 

 

Total

     331.262         132.883         83.401   
  

 

 

    

 

 

    

 

 

 

 

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28. FINANCE INCOME (COSTS)

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Finance income

        

Inflation adjustment - AFCI

     —           —           —     

Income on short-term investments

     10.439         3.874         1.199   

Inflation adjustment

     2.590         1.718         1.326   

Selic adjustment

     417         1.369         828   

Other finance income

     —           —           16   
  

 

 

    

 

 

    

 

 

 

Total

     13.446         6.961         3.369   
  

 

 

    

 

 

    

 

 

 

Finance costs

        

Debt charges

     (587.919      (164.688      (4.076

Inflation adjustment on environmental costs (APV)

     (29.020      —           —     

Inflation adjustment - AFCI

     (20.691      —           —     

Use of public asset

     (15.845      (15.994      (1.747

Other finance costs

     (32.541      (1.260      (2.153
  

 

 

    

 

 

    

 

 

 

Total

     (686.016      (181.942      (7.976
  

 

 

    

 

 

    

 

 

 

Finance income (costs)

     (672.570      (174.981      (4.607
  

 

 

    

 

 

    

 

 

 

 

29. FINANCIAL INSTRUMENTS

 

  29.1. Capital risk management

The subsidiary manages its capital to ensure that it can continue as a going concern, while maximizes the return of all its stakeholders by optimizing the balance of debt and equity. The subsidiary’s overall strategy remains unchanged since 2013.

In managing its capital, the purposes of the subsidiary are to ensure the startup of operations, which began in September 2013 (as described in Note 1, the subsidiary is in operation and has 34 generation units at UHE Jirau), in order to offer return to its shareholders, besides maintaining a proper capital structure to reduce the related costs.

 

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The Company is not subject to any external capital requirements, other than the capitalization ratio described in Note 20.

The Company’s Finance Department reviews on a quarterly basis its capital structure. As part of this review, the Executive Board considers the cost of capital and risks associated to each class of capital. The debt ratio as at December 31, 2015 was 1.58 (1.54 as at December 31, 2014).

Debt ratio

The Company’s capital structure consists of financial liabilities with financial institutions (Note 20), cash and cash equivalents and securities – reserve account (Notes 4 and 5), and equity (Note 28).

 

     12/31/2015      12/31/2014      12/31/2013  
Debt ratio:    (unaudited)             (unaudited)  

Total borrowings and financing (*)

     11.299.857         11.324.749         10.197.107  

Cash and cash equivalents

     (143.706      (74.301      —     

Securities – reserve account

     (61.621      (10.612      (4.428

Net debt

     11.094.530         11.239.836         10.192.679  
  

 

 

    

 

 

    

 

 

 

Total equity

     7.019.063         7.268.412         6.920.139  
  

 

 

    

 

 

    

 

 

 

Net debt-to-equity ratio

     1,58         1,55         1,47   
  

 

 

    

 

 

    

 

 

 

 

(*) Debt is defined as short- and long-term borrowings and financing, as detailed in Note 20.

 

  29.2. Classification of financial instruments

The carrying amounts of financial assets and liabilities represent a reasonable approximation of fair value. The Company uses the hierarchy to measure the fair value of its financial instruments:

 

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          12/31/2015      12/31/2014      12/31/2013  
          (unaudited)             (unaudited)  
     Mensuration    Book value /
Fair value
     Book value /
Fair value
     Book value /
Fair value
 

Financial assets

           

Loans and receivables – amortized cost:

           

Cash and cash equivalents (a)

        143.897         74.301         4.428   

Marketable securities – reserve
account (b)

   Fair value      61.621         10.612         —     

Trade receivables

   Amortized cost      380.951         151.127         87.064   
     

 

 

    

 

 

    

 

 

 

Total financial assets

        586.469         236.040         91.492   
     

 

 

    

 

 

    

 

 

 

Financial liabilities:

           

Other financial liabilities - amortized cost:

           

Suppliers

   Amortized cost      133.856         211.693         298.934   

Payables

   Amortized cost      750.915         31.709         —     

Financing

   Amortized cost      11.299.857         11.324.749         10.197.107   

Public asset use

   Amortized cost      124.518         120.431         115.368   
     

 

 

    

 

 

    

 

 

 

Total financial liabilities

        12.309.146         11.688.582         10.611.409   
     

 

 

    

 

 

    

 

 

 

 

(a) Cash and cash equivalents mainly corresponds to short-term investments in Bank Certificates of Deposit (CDB) and repurchase transactions (Note 4).
(b) Amount invested in federal government bond, pursuant to Clause Six, Paragraph Two of the Collateral Sharing Agreement and Other Covenants (BNDES); see Note 5.

 

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  29.3. Estimated fair value

Financial assets and liabilities recorded at fair value are classified and disclosed in accordance with the following levels:

 

     12/31/2015 (unauited)  
     Level 1      Level 2      Level 3      Total  

Financial assets (current / noncurrent):

           

Marketable securities – reserve account

     —           61.621         —           61.621   

 

     12/31/2014  
     Level 1      Level 2      Level 3      Total  

Financial assets (current / noncurrent):

           

Marketable securities – reserve account

     —           10.612         —           10.612   

Hierarchical fair value

There are three levels for classifying the fair value related to instruments financial, the hierarchy gives priority to unadjusted quoted prices in an active market for the asset or liability. The classification of hierarchical levels can be displayed, as shown below:

Level 1 - Inputs from an active market (unadjusted quoted price) so that you can access daily, including on the date of fair value measurement.

 

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Level 2 - Inputs other than those from an active market (unadjusted quoted price) included in Level 1, extracted from a pricing model based on observable market data.

Level 3 - Inputs taken from a pricing model based on unobservable market data.

 

  29.4. Objectives of financial risk management

The estimated realizable amounts of the subsidiary’s financial assets and financial liabilities fair value estimates.

Therefore, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current exchange market. The use of market methodologies may have different effects on the estimated realizable values.

The financial condition and results of future operations can be adversely affected by any of the risk factors described below.

 

  29.5. Market risk

The Company and its subsidiary did not enter into derivative agreements to hedge their assets and liabilities, mainly in relation to the interest rate, price and currency fluctuations. However, assets and liabilities are monitored and assessed periodically in order to determine their exposure.

 

  29.6. Interest rate and floating indices risk

This risk arises from the possibility of the subsidiary incurring losses due to fluctuations in the interest rates applicable to its liabilities or assets. The subsidiary is exposed to floating interest rate subject to the Long-term Interest Rate (TJLP) fluctuation in relation to the financing agreements, to the IPCA in relation to the payment to the Federal Government for the UBP, to the CDI in relation to the short-term investments and to the Reference Rate (TR) in relation to the escrow deposits.

As at December 31, 2015, the subsidiary does not have any derivative contracts to hedge against these indices; however, risks are monitored by the Company’s management, which periodically assesses exposure and proposes the strategies to be adopted.

 

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Sensitivity analysis

As a result of the historical volatility of the Brazilian real against foreign currencies, interest rates and price indices, the Company prepared a sensitivity analysis on its financial assets and financial liabilities based on the possible effects on its profit or loss or property, plant and equipment in 2015, based on the reasonable assumptions adopted by it.

The fluctuations used to calculate impact as at December 31, 2015 (unaudited) were as follows: foreign currency fluctuation—US dollar (3.90), TJLP (7.0%) and CDI (14.14%).

(i) Changes (increase) in foreign currency

 

Transaction

   Exposure
(thousands
of USD)
     Risk      Impact
(Probable scenario (*)
     Impact
Scenario A
    Impact
Scenario B
 

Purchase of equipment

     45.014        
 
 
Increase in
the US
dollar rate
  
  
  
     —           (22.291     (40.297

Benchmark rate for financial assets:

       
 
Rate as at
12/31/2015
  
  
     Probable scenario         10     20

US dollar

        3,90         4,00         4,40        4,80   

 

(*) Finance income (cost) for the next twelve months, based on the estimated US dollar rate of 4.00 for the 12-month period, according to market expectations.

In relation to trade payables pegged to the foreign currency, scenarios A and B consider a growth in the US dollar rate by 10% and 20%, respectively.

(ii) Changes (increase) in interest rate (TJLP)

 

Transaction

   Exposure      Risk     Impact
(Probable scenario (*))
    Impact
Scenario A
    Impact
Scenario B
 

Financing

     11.382.783        
 
Increase in
TJLP rate
  
  
    (53.191     (159.572     (265.953

Benchmark rate for financing:

       
 
Rate as at
12/31/2015
  
  
    Probable scenario        1,0     2,0

TJLP (%)

        7,00     7,50     8,50     9,50

 

(*) Shows the total debt balance with BNDES, considering the TJLP (adjusted on January 1, 2016) of 7.5% from January to December 2016. Scenarios A and B consider a variance of the TJLP rate by +1.0% and + 2.0%, respectively.

 

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In relation to financing , scenarios A and B consider a variance in the TJLP rate by 1% and 2%, respectively.

(iii) Change (drop) in the CDI rate.

 

Transaction

   Exposure      Risk     Impact
(Probable scenario (*))
    Impact
Scenario A
    Impact
Scenario B
 

Financial assets

     205.327        
 
CDI rate
decrease
  
  
    —          3.047        6.092   

Benchmark rate for financial assets:

       
 
Rate as at
12/31/2015
  
  
    Probable scenario        (10 %)      (20 %) 

CDI (%)

        14,14     14,14     12,73     11,31

 

(*) Finance income (cost) for the next twelve months, based on the estimated CDI rate of 14.13% for the period, according to market expectations.

In relation to short-term investments , scenarios A and B consider a drop in the CDI rate by 10% and 20%, respectively, within a 12-month period.

(iv) Changes (increase) in IPCA rate.

 

Transaction

   Exposure     Risk      Impact
(Probable scenario (*))
    Impact
Scenario A
    Impact
Scenario B
 

UBP payable

     124.518        IPCA increase         —          (1.341     (2.682
  

 

 

      

 

 

   

 

 

   

 

 

 

Benchmark rate for UBP payable:

      
 
Rate as at
12/31/2015
  
  
    
 
Probable
scenario
  
  
    (10 %)      (20 %) 

IPCA (%)

     10,77        10,74     11,85     12,92

 

(*) Finance income (cost) for the next twelve months, based on the estimated IPCA rate of 10.77% for the period, according to market expectations.

In relation to UBP payable, scenarios A and B consider a growth in the IPCA rate by 11.85% and 12,92%, respectively, within a 12-month period.

 

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  29.7. Liquidity risk

The management of the Company’s liquidity risk is under the responsibility of the Finance Department, which manages the funding and liquidity management requirements in the short, medium and long-term through permanent monitoring of estimated and actual cash flows. The Company, in order to ensure the performance of its obligations, on a conservative basis, adopts the minimum cash policy, which is annually reviewed based on the cash projections and monthly monitored by the Finance Department. The management of short-term investments is focused on very short-term instruments, mainly those maturing on a daily basis, in order to ensure maximum liquidity and cover disbursements.

 

  29.7.1. Liquidity risk and interest tables

The tables below show in details the contractual maturities remaining for the Company’s non-derivative financial assets and liabilities and contractual repayment terms. The tables were prepared using the undiscounted cash flows of financial liabilities based on the closest date on which the Company must settle the related obligations.

The table below shows the non-derivative financial liabilities of the ESBR by maturation range, for the period remaining on the balance sheet until the contractual maturation date and includes related contractual interest.

 

    

Weighted

average

effective

interest rate

     Less than
one
month
     1 to
3 months
     3 months to 1
year
     From 1 to 5
years
     More than 5
years
     Total  
     %                                            

December 31, 2015 (unaudited)

                    

Instruments at floating interest rates*

     CDI x 100.41         143.706         —           —           —           —           143.706   

Securities – reserve account

     CDI x 94.55         —           —           —           61.621         —           61.621   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

        143.076         —           —           61.621         —           205.327   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Weighted
average
effective
interest rate
     Less than
one
month
     1 to
3 months
     3 months to 1
year
     From 1 to 5
years
     More than 5
years
     Total  
     %                                            

Financing

     TJLP + 2.45         95.462         191.262         863.311         4.790.737         18.377.250         24.321.022   

Trade payables

        107.927         —           —           25.929         —           133.856   

UBP payable

     IPCA         1.040         2.080         9.360         62.400         49.638         124.518   

Provision for environmental costs

        6.032         18.095         48.254         152.102         353.052         577.535   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

        210.461         211.437         923.925         5.031.168         18.779.940         25.156.931   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

                    

Instruments at floating interest rates*

     CDI x 100.00         73.637         —           —           —           —           73.637   

Securities – reserve account

     CDI x 94.00         —           —           —           15.225         —           15.225   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

        73.637         —           —           15.225         —           88.862   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Financing

     TJLP + 2.45         74.487         208.562         827.065         4.571.706         16.797.348         22.479.168   

Trade payables

        205.055         —           —           6.638         —           211.693   

UBP payable

     IPCA         950         1.900         8.550         57.000         52.031         120.431   

Provision for environmental costs

        8.950         26.849         71.597         209.484         267.042         583.922   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

        289.442         237.311         907.212         4.844.828         17.116.421         23.395.214   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

*  Short-term investments in “Cash and cash equivalents”.

     

December 31, 2013 (unaudited)

  

              

Instruments at floating interest rates*

     CDI x 100.00         865         —           —           —           —           865   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

        865         —           —           —           —           865   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financing

     TJLP + 2.45         74.487         208.562         827.065         4.571.706         16.797.348         22.478.242   

Trade payables

        298.934         —           —           —           —           298.934   

UBP payable

     IPCA         950         1.900         8.550         57.000         46.998         115.368   

Provision for environmental costs

        8.950         26.849         71.597         209.484         139.428         456.308   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

        383.321         237.311         907.212         4.838.190         16.982.848         23.348.882   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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30. NONCASH TRANSACTIONS

In 2015 and 2014, the subsidiary carried out the following non-cash transactions, which were, therefore, excluded from the statement of cash flows:

 

            12/31/2015      12/31/2014      12/31/2013  
            (unaudited)             (unaudited)  

Capitalization of plant’s insurance premiums

     (a      —           16.776         16.561   

Capitalized interest on financing

     (b      363.907         588.460         695.542   

Inflation adjustment - LI

     (c      13.907         236.038         245.756   

Inflation adjustment - LO

     (c      4.519         (44.713      —     

Provision for risks – ICMS

     (d      151.215         123.189         305.909   

Changes in financed purchases of property, plant and equipment

     (e      37.544         95.831         80.401   

Offset taxes

     (f      325.208         154.652         —     

ISSQN - tax assessment notice

     (g      —           14.941         —     

Environmental costs

     (h      —           154.911         456.310   

 

(a) As described in Note 11, this amount refers to the recognition of works insurance capitalized in property, plant and equipment.
(b) Refers to capitalized interest on the BNDES direct financing and financing as onlengind through a pool of banks comprised of: Banco do Brasil, Caixa Econômica Federal, Banco do Nordeste do Brasil, Bradesco and Itaú BBA.
(c) Refer to to the inflation adjustment to the provisions for environmental costs relating to the plant’s LIs and LOs, as resulting in growth in intangible assets and property, plant and equipment as a balancing item to environmental costs (liability).
(d) Refers to the provision for ICMS risks, as described in Note 23.1.2.

 

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(e) Refers to the addition to property, plant and equipment of non-cash trade payables.
(f) Refers to taxes offset in the period (Note 8).
(g) For the ISSQN - Tax assessment notice, see Note 17.
(h) Inflation adjustments of LI and LO – refer to provisions for environmental costs relating to the plant’s installation and operating licenses, as prescribed by OCPC 05. The monthly discount rate (WACC—Weighted Average Cost of Capital) was 0.64806%, calculated on the study date, and annual IPCA was 4.5%. In 2014, the provision for environmental costs was adjusted based on the annual environmental program amounts, from 2015 to 2043.

 

31. COMMITMENTS

 

  31.1. Concession-related commitments

The Parent assumed some commitments in the concession arrangement, as follows:

 

    Invest, on an annual basis, at least 1% of its net operating revenue in research & development activities of the power sector, as set forth in Law 9991, of July 24, 2000, as amended by Law 10848, of March 15, 2004. The Parent must submit to ANEEL, on an annual basis, a program describing the physical and financial actions and goals, as well as confirm the performance of the obligations to the National Scientific and Technological Development Fund;

 

    Guarantee in connection with the Invitation to Bid - Aneel 02/2011 (Auction A-3, of August 2011) in the amount of R$77,064, as warranty insurance, without reduction milestones and percentage rates;

 

    The performance bond for the obligations assumed in the concession arrangement, as set forth in item 12 of the Invitation to Bid 05/2008 (including the obtaining of the LI, including social and environmental projects, and the LO), at the initial amount of R$650,000 and current amount of R$162,500 (complied through the performance bond contracted in the form of warranty insurance), will be effective up to three months after the startup of operations of the UHE Jirau’s last generation unit, according to the respective guarantee reduction ratios and percentages, as described below:

 

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Order

 

Milestone

   Percentage released of
the initial collateral
amount
 

1

  Completion of the construction site implementation      20

2

  Beginning of the power house concreting      30

3

  Rotor fall of the first turbine      40

4

  Startup of operations of the first turbine      75

5

 

Startup of operations of the generating unit

accounting for 50% of the plant total capacity

     85

6

 

End of the third month after the startup of operations

of the last generation unit

     100

 

  31.2. Other commitments

Based on the agreements entered into with the suppliers of UHE Jirau construction work and on the estimated future costs for the completion of the generation plant, the Companys Board of Directors periodically reviews the work budget. The last budget approved by the Company’s Board of Directors, at the meeting held on January 28, 2015, and prepared as at December 31, 2014, indicates that the total amount to be invested in the Jirau Project would total approximately R$19 billion (unaudited).

The amount approve refers to the amount to be disbursed in the materials an dservice agreements related to the construction of UHE Jirau, not therefore considering the non-monetary amounts recorded in property, plant and equipment as capitalized financing interest, provision for ICMS and amounts related to UBP and environmental costs of the operating stage recorded, as prescribed by OCPC 05.

In September 2013, the Company entered into an agreement with Itaú BBA for the issuance of a guarantee, by means of the Standby Letter of Credit, in order to ensure the possible return of a portion of the amount advanced by the insurance and reinsurance companies, relating to the claim arising from vandalism in the construction site in 2011 and 2012, currently under foreign arbitration process. The advance was made upon an agreement entered into between the Company and the insurance and reinsurance companies. The guarantee was renewed and is effective through September 2016, with maximum guaranteed amount of R$38,202.

 

32. GUARANTEES RECEIVED

The agreements may be collateralized by advanced amount or performance bond. In relation to the type, these guarantees may be in the form of corporate guarantee, retention of amounts paid, bank guarantee letter and warranty insurance.

 

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The advanced amount guarantee, always in the form of bank guarantee letter, is directly related to the advanced amount set forth in the agreement, which will be solely performed after the provision of the guarantee by the supplier. The performance bond relates to the compliance with the contractual provisions and aims at protecting the Company against possible contractual default. In general, these guarantees may be reduced by the allocation of the contractual advances and compliance with the contractual provisions, respectively.

The main information on the guarantees received in accordance with the original currency set forth in the agreement and, therefore, in the guarantees, is as follows (unaudited):

 

Guarantees in R$ (thousands)

 

Type of service/
equipment

         

Type of guarantee

   Initial
contractual
amount
     Current
secured
amount
     Issuing bank of the
prevailing bank
guarantee
   Effective date
of the current
guarantee
     Maturity of
the bank
guarantee
 

National turbines

     Alstom       Performance      168.114         195.011       Chartis Seguros/Itaú      05/31/2011         03/12/2016   
     Andritz       Performance      97.935         113.623       Chartis Seguros/Itaú      05/31/2011         03/12/2016   
     Voith       Performance      84.951         98.505       Chartis Seguros/Itaú      05/31/2011         03/12/2016   

Lifting / hydromechanic equipment

     Bardella       Performance      28.880         28.880       J Malucelli      12/30/2014         12/30/2015   
      Performance (Siemens)      67.459         67.459       Chartis      05/31/2009         04/30/2017   

Electric and auxiliary systems

     Siemens/CNEC      

Performance (Cnec)

     30.600         30.600       Chartis      05/31/2009         04/30/2017   
     

Siemens down payment (letter of guarantee)

     20.950         304       BNP Paribas      03/27/2015         03/27/2016   
     

Sinal Cnec (letter of guarantee)

     9.503         207       HSBC      04/01/2015         03/28/2016   

Commissioning

     Copem       Warranty insurance      4.955         5.552       Swiss Re      08/01/2012         07/31/2016   

Assembly

     Enesa       Performance      45.987         45.987       ACE Seguradora      11/05/2014         11/17/2016   

Owner engineer

     Leme       Performance      10.000         10.000       J Malucelli      12/12/2015         12/31/2016   

Project design

     Themag       Contractual retention      12.253         1.742       N/A      11/22/2013        
 
Contractual
termination
  
  

Construction works

     Jmalucelli       Letter of guarantee      35.592         35.592       Banco Votorantim      11/29/2013        
 
Contractual
termination
  
  

Total

           617.179         633.462            

Collaterals in US$ (thousands)

 

Imported turbines

     Dong Fang       Performance      73.200         73.200       Bank of China      03/27/2012         11/17/2017   

SF6 substation

     Hyosung       Performance      5.285         5.285       Itaú      03/24/2010         03/01/2017   

Total

           78.485         78.485      

 

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33. SUBSEQUENT EVENTS (unaudited)

 

  33.1. New turbines placed into operation

 

Sequence

   Generation unit      ANEEL Order      Startup of
activities
 

38ª

     17         0011         01/06/2016   

39ª

     18         0011         01/06/2016   

40ª

     19         0011         01/06/2016   

41ª

     41         102         01/16/2016   

42ª

     42         795         03/31/2016   

43ª

     43         2227         08/20/2016   

44ª

     44         2376         09/09/2016   

45ª

     45         2480         09/16/2016   

 

  33.2. Exemption Claim

On February 19, 2016, ANEEL revised its interpretation of the court decision and through new opinion enforceable officiated CCEE through Official Letter No. 78/2016-DIR / ANEEL. Given the command of ANEEL, on March 15, 2016, the CCEE changed the way of compliance with the decisions made by the President of the Federal Court of the 1st Region (TRF1) in the minutes CAD 857.

Against the court decision to breach the subsidiary filed a request to the Presidency of TRF1 which was promptly answered, in a decision handed down on June 30, 2016 and duly attended by the CCEE in the minutes CAD 862, published on April 5, 2016.

The partial suspension of sentence prevented the subsidiary was required to make payments, but also made it impossible to benefit from the favorable effects arising from the recognition of the 535 days delay by excluding liability (situation zero to zero).

Thus, on April 14, 2016 ANEEL established a special appeal against the decision partially suspended the effects of the sentence, which was judged denied unanimously on June 16, 2016, by the Special Court of the Federal Court of the 1st Region. On June 20, the 6th Chamber of the TRF1 dismissed the special appeal filed by ANEEL against the decision of the 5th Federal Court of Porto Velho who received the appeal only in the devolution effect. On June 20, 2016 the same Special Court also denied, unanimously, the special appeal filed by the subsidiary.

 

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On 1 September 2016, the Special Court of the Federal Court TRF1 denied the special appeal brought by energy distributors, it has himself to stabilize the matter before the Federal Court of the 1st Region to judge, through its 6th class just appeal filed by ANEEL against the decision which declared the exemption claim by 535 days late. In October 2016, this decision was declared non-appealable by the Federal Court TRF1.

In September, 30 the subsidiary had recorded the provision for risks of exemption claim, in the amount of R$2,720,317, (R$2,555,291 as at December 31, 2015).

 

 

BOARD OF DIRECTORS

 

Maurício Stölle Bähr   
Chairman   
Victor Frank de Paula Rosa Paranhos    Jose Luiz Jansson Laydner
Director    Director
Manoel Arlindo Zaroni Torres    Ronaldo dos Santos Custódio
Director    Director
Yoshinori Utaka    Kazuki Shimizu
Director    Director

José Ailton de Lima

Director

  

José Pedro de Alcântara Júnior

Director

 

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EXECUTIVE BOARD

 

Victor Frank de Paula Rosa Paranhos    Paulo Maurício Mantuano de Lima
(Chief Executive Officer)    (Chief Financial Officer)
Victor Frank de Paula Rosa Paranhos    José Lúcio de Arruda Gomes
(Chief Engineering Officer)    (Chief Administrative Officer)
Isac Paulo Teixeira   
(Chief Environment Officer)   

ACCOUNTING / TAX DEPARTMENT

ACCOUNTANT

Marcia Cristina M.P. Gonçalves

CRC-RJ 087201/O-1

 

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LOGO

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Madeira Energia S.A. – MESA

We have audited the accompanying consolidated balance sheet of Madeira Energia S.A. – MESA and its subsidiary (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, changes in equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the auditing standards generally accepted in the United States of America and in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Madeira Energia S.A. – MESA and its subsidiary at December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The accompanying consolidated statements of operations, comprehensive loss, changes in equity and of cash flows of the Company for the year ended December 31, 2013 was not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

/s/ Pricewaterhouse Coopers Auditores Independentes

October 10, 2016

São Paulo - Brazil

 

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Madeira Energia S.A. – MESA and its subsidiary

Financial statements

At December 31, 2015 and independent auditor’s report

 

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MADEIRA ENERGIA S.A.—MESA AND ITS SUBSIDIARY

CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2015 and 2014

(In thousands of Brazilian reais - R$)

 

     Note      December 31, 2015      December 31, 2014           Note      December 31, 2015     December 31, 2014  

Assets

            Liabilities and equity        

Current assets

            Current liabilities        

Cash and cash equivalents

     4         299.963         241.129           Trade payables      13         976.217        1.186.313   

Consumers and concessionaires

     5         300.931         280.934           Salaries and charges payable         2.678        2.347   

Income tax and social contribution recoverable

        36.926         46.606           Borrowings      14.1         440.915        392.446   

Taxes for offset

     6         14.302         63.969           Debentures      14.2         9.864        11.369   

Guarantee deposits

     7         46.147         18.158           Taxes and contributions      15         31.753        30.758   

Recoverable expenses

     8         830.936         756.227           Advances from customers      16         86.697        46.684   

Prepaid expenses

        39.351         37.821           Performance bond      17         114.169        95.188   

Other assets

        39.663         22.649           Regulatory and sector charges         40.275        34.784   
     

 

 

    

 

 

            
        1.608.219         1.467.493           Concessions payable      18         19.301        17.502   
     

 

 

    

 

 

            
                Social and environmental provisions      19         63.890        111.313   
                Provision for contingencies      20         355.973     

Non-current assets

                 Other liabilities         9.725        20.493   
                 

 

 

   

 

 

 

Long-term receivables

                    2.151.457        1.949.197   
                 

 

 

   

 

 

 

Income tax and social contribution recoverable

           13.288              

Taxes for offset

     6         1.418         1.398       Non-current liabilities        

Guarantee deposits

     7         499.028         152.946           Borrowings      14.1         10.427.165        9.491.671   

Recoverable expenses

     8         32.687         29.779           Debentures      14.2         3.634.073        3.153.908   

Deferred income tax and social contribution

     9         620.581         12.340           Taxes and contributions      15         38.377        41.941   

Prepaid expenses

        13.531         37.851           Advances from customers      16         260.941     

Other assets

        15.131         21.457           Performance bond      17         219.590        184.649   
     

 

 

    

 

 

            
                Concessions payable      18         226.896        209.212   
        1.182.376         269.059           Obligations tied to the concession         5.653     
                Social and environmental provisions      19         266.602        248.169   

Investment in subsidiary

     10                 Provision for contingencies      20         10.983        9.664   

Property, plant and equipment

     11         21.978.007         20.801.649           Other provisions      21         210.325        176.698   

Intangible assets

     12         202.379         196.373           Deferred income tax and social contribution      22         267.822        274.564   
     

 

 

    

 

 

          

 

 

   

 

 

 
        23.362.762         21.267.081               15.568.427        13.790.476   
     

 

 

    

 

 

          

 

 

   

 

 

 

Total assets

        24.970.981         22.734.574       Equity      23        
     

 

 

    

 

 

            
                Share capital         9.761.952        9.455.706   
                Advance for future capital increase           68.076   
                Accumulated losses         (2.510.855     (2.528.881
                 

 

 

   

 

 

 
                    7.251.097        6.994.901   
                 

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Madeira Energia S.A. - MESA

and its subsidiary

Statement of operations

Years ended December 31

All amounts in thousands of reais unless when otherwise stated

 

     2015     2014     2013  
                 (unaudited)  

Net operating revenue (Note 25)

     2.604.869        2.343.960        1.300.585   
  

 

 

   

 

 

   

 

 

 

Net revenue from sale of energy

     2.604.869        2.520.600        1.300.585   

Share of net revenue related to the 2nd advance schedule

       (176.640  

Cost of electric energy service (Note 26(a))

     (2.082.620     (3.686.398     (929.565
  

 

 

   

 

 

   

 

 

 

Cost of sale of electric energy

     (1.393.144     (3.042.482     (634.171

Cost of operation

     (689.476     (643.916     (295.394
  

 

 

   

 

 

   

 

 

 

Gross operating income (loss)

     522.249        (1.342.438     371.020   

General and administrative expenses (Note 26(b))

     (152.229     (139.184     (100.429

Other expenses

     (36     30     

Share of costs related to the 2nd advance schedule (Note 26(b))

       334     

Equity in results of subsidiary (Note 10)

      
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     369.984        (1.481.258     270.591   

Finance income (Note 27 )

     156.717        64.533        18.115   

Finance costs (Note 27 )

     (1.123.658     (797.759     (323.896
  

 

 

   

 

 

   

 

 

 

Finance costs, net

     (966.941     (733.226     (305.781

Profit (loss) before income tax and social contribution

     (596.957     (2.214.484     (35.190

Income tax and social contribution - current

       (49     —     

Income tax and social contribution - deferred

     614.983        6.473        (12.548
  

 

 

   

 

 

   

 

 

 

Profit (loss) for the year

     18.026        (2.208.060     (47.738
  

 

 

   

 

 

   

 

 

 

Basic and diluted earnings (loss) per thousand common shares (in reais) (Note 24)

      

The accompanying notes are an integral part of these financial statements.

 

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Madeira Energia S.A. - MESA

and its subsidiary

Statement of comprehensive income (loss)

Years ended December 31

All amounts in thousands of reais

 

     2015      2014     2013  
                  (unaudited)  

Net income (loss) for the year

     18.026         (2.208.060     (47.738
  

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) for the year

     18.026         (2.208.060     (47.738
  

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) for the year attributable to the stockholders of the Company

     18.026         (2.208.060     (47.738
  

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Madeira Energia S.A. - MESA

and its subsidiary

Statement of changes in equity

All amounts in thousands of reais

 

     Share capital (Note 23)                    
     Subscribed      Unpaid
(Note 23 (ii))
    Retained earnings
(accumulated
deficit)
    Advance for future
capital increase
    Total  

At January 1, 2013 (unaudited)

     5.069.572           (273.083       4.796.489   

Total comprehensive income (loss) for the year Loss for the year

          (47.738       (47.738
       

 

 

     

 

 

 

Total comprehensive income (loss) for the year

          (47.738       (47.738
       

 

 

     

 

 

 

Total contributions by stockholders

           

Capital increase on 2.26.2013

     230.000               230.000   

Capital increase on 4.25.2013

     125.000               125.000   

Capital increase on 5.24.2013

     60.000               60.000   

Capital increase on 6.24.2013

     862.100               862.100   

Capital increase on 9.25.2013

     100.000               100.000   

Capital increase on 10.18.2013

     200.000            

Capital increase on 11.21.2013

     100.000               100.000   
  

 

 

          

 

 

 

Total contributions by stockholders

     1.677.100               1.677.100   
  

 

 

          

 

 

 

At December 31, 2013 (unaudited)

     6.746.672           (320.821       6.425.851   
  

 

 

      

 

 

     

 

 

 

Total comprehensive income (loss) for the year Loss for the year

          (2.208.060       (2.208.060
       

 

 

     

 

 

 

Total comprehensive income (loss) for the year

          (2.208.060       (2.208.060
       

 

 

     

 

 

 

Total contributions by stockholders

           

Capital increase on 2.18.2014

     200.000               200.000   

Capital increase on 3.25.2014

     200.000               200.000   

Capital increase on 8.5.2014

     350.000               350.000   

Capital increase on 9.5.2014

     850.000               850.000   

AFCI received on 10.3.2014

            295.740        295.740   

Capital subscribed on 10.21.2014

     1.415.280         (1.415.280      

Capital increase on 10.21.2014

        483.635          (150.660     332.975   

Capital increase on 10.22.2014

        326.365            326.365   

Capital increase on 10.27.2014

        232.800          (55.800     177.000   

Capital increase on 12.9.2014

        66.234          (21.204     45.030   
  

 

 

    

 

 

     

 

 

   

 

 

 

Total contributions by stockholders

     3.015.280         (306.246       68.076        2.777.110   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2014

     9.761.952         (306.246     (2.528.881     68.076        6.994.901   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year Income for the year

          18.026          18.026   
       

 

 

     

 

 

 

Total comprehensive income for the year

          18.026          18.026   
       

 

 

     

 

 

 

Total contributions by stockholders

           

Capital increase on 1.8.2015

        22.230            22.230   

Capital increase on 1.12.2015

        41.594          (9.970     31.624   

AFCI received on 1.12.2015

            62.480        62.480   

Capital increase on 1.21.2015

        166.374          (82.758     83.616   

Capital increase on 7.31.2015

        76.048          (37.828     38.220   
     

 

 

     

 

 

   

 

 

 

Total contributions by stockholders

        306.246          (68.076     238.170   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015

     9.761.952           (2.510.855       7.251.097   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Madeira Energia S.A. - MESA

and its subsidiary

Statements of cash flows

Years ended December 31

All amounts in thousands of reais

 

     Parent Company     Consolidated  
     2015     2014     2015     2014  

Cash flows from operating activities

        

Profit (loss) for the year before income tax and social contribution

     11.284        (2.211.101     (596.957     (2.214.484

Adjustments

        

Interest and monetary variation, net

         962.876        595.696   

Sale and supply of electric energy

         (347.615     (520.478

Electric energy purchased for resale

         874.445        306.821   

Network use charge

         73.351        60.788   

Depreciation and amortization

         480.758        377.280   

Advance schedule income (loss), net

           67.501   

Provision for contingencies

         62     

Operating costs

         11.675        163.977   

Equity in results of subsidiaries

     (13.730     2.211.317       
  

 

 

   

 

 

   

 

 

   

 

 

 
     (2.446     216        1.458.595        (1.162.899

Changes in assets and liabilities

        

Consumers and concessionaires

         280.934        191.677   

Other assets

     232        (418     (10.685     (10.791

Income tax and social contribution recoverable

     13.231        (771     22.969        (5.895

Recoverable expensess

         5.522        23.644   

Prepaid expenses

         22.790        8.652   

Taxes for offset

     5          49.642        (61.674

Guarantee deposits

         (374.071     (13.467

Trade payables

     2        (2     (636.061     (510.433

Salaries and charges payable

     6        19        541        189   

Taxes and social contribution

     (14     (41     (10.568     1.168   

Advances from customers

         300.000        154.789   

Personnel liabilities

           2.085   

Regulatory and sector charges

         11.144        20.682   

Other liabilities

     1.155        2        (10.977     1.386   

Social and environmental provisions

         (47.423     (114.609
  

 

 

   

 

 

   

 

 

   

 

 

 
     12.171        (995     1.062.352        (1.475.496

Payment of interest and charges on debentures (Note 14.2(e))

         (86.506     (72.412

Payment of interest on borrowings (Note 14.1(c))

         (622.487     (381.356
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     12.171        (995     353.359        (1.929.264
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

        

Capital increase in subsidiary (Note 10)

     (190.690     (2.777.110    

Advance for future capital increase (Note 10)

     (62.480      

Additions to property, plant and equipment

         (1.182.907     (1.373.516

Additions to intangible assets

         (14.156     (17.057

Payment for the use of public property (Note 18)

         (18.289     (1.552
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (253.170     (2.777.110     (1.215.352     (1.392.125
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

        

Stockholders’ capital increase

     175.690        2.777.110        175.690        2.777.110   

Advance for future capital increase

     62.480          62.480     

Issue of debentures

           704.941   

Borrowings (Note 14.1(c))

         1.060.573        15.000   

Payment of borrowing - Principal (Note 14.1(c))

         (377.916     (232.903
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     238.17 0        2.777.110        920.827        3.264.148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents, net

     (2.829     (995     58.834        (57.241

Cash and cash equivalents at the beginning of the year (Note 4)

     3.998        4.993        241.129        298.370   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year (Note 4)

     1.169        3.998        299.963        241.129   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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Madeira Energia S.A. - MESA

and its subsidiary

Statements of value added – Supplementary information

Years ended December 31

All amounts in thousands of reais

 

     2015     2014     2013  
                 (unaudited)  

Revenue

     4.640.054        5.436.846        5.273.912   
  

 

 

   

 

 

   

 

 

 

Revenues related to the construction of own assets

     1.663.123        2.547.348        3.507.837   

Operating revenues

     2.976.967        2.889.468        1.766.075   

Other revenues (expenses)

     (36     30     

Inputs acquired from third parties

     (2.797.207     (5.877.864     (3.925.015
  

 

 

   

 

 

   

 

 

 

Third-party services

     (1.172.161     (2.169.189     (2.515.826

Materials

     (638.572     (3.391.981     (1.899.544

Other

     (986.474     (316.694     490.355   

Gross value added

     1.842.847        (441.018     1.348.897   
  

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     (480.758     (377.280     (231.923

Value added received through transfer

     201.488        97.300        50.600   
  

 

 

   

 

 

   

 

 

 

Finance income, net

     201.488        97.300        50.600   

Equity in the results of subsidiary

      

Total value added to distribute

     1.563.577        (720.998     1.167.574   
  

 

 

   

 

 

   

 

 

 

Distribution of value added

     1.563.577        (720.998     1.167.574   
  

 

 

   

 

 

   

 

 

 

Personnel

     69.697        68.679        46.816   
  

 

 

   

 

 

   

 

 

 

Direct compensation

     53.594        57.296        38.910   

Benefits

     13.043        8.457        6.074   

FGTS - Government Severance Indemnity Fund for Employees

     3.060        2.926        1.832   

Taxes, fees and contributions

     (263.266     98.164        193.548   
  

 

 

   

 

 

   

 

 

 

Federal

     (404.852     (25.170     58.789   

State

     141.133        123.052        134.728   

Municipal

     453        282        31   

Remuneration of third-party capital

     1.739.120        1.320.219        974.948   
  

 

 

   

 

 

   

 

 

 

Interest

     1.731.082        1.314.346        970.345   

Rents

     8.038        5.873        4.603   

Remuneration of own capital

     18.026        (2.208.060     (47.738
  

 

 

   

 

 

   

 

 

 

Profit (loss) for the year

     18.026        (2.208.060     (47.738

The accompanying notes are an integral part of these financial statements.

 

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MADEIRA ENERGIA S.A.—MESA AND ITS SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2015, 2014 and 2013 (unaudited)

 

 

1 General information

Madeira Energia S.A. - MESA (“Company” or “Parent Company”) is a privately-held corporation, organized on August 27, 2007, headquartered in the city of São Paulo, whose purpose is the development of the implementation project of the Santo Antônio Hydroelectric Plant in a section of the Madeira River, in the city of Porto Velho, State of Rondônia, as well as conducting all the activities necessary to the construction, operation, maintenance and exploitation of that hydroelectric plant and its associated transmission system.

On September 29, 2008, the Company gained consent of the National Electric Energy Agency – ANEEL to transfer the energy generation concession to its wholly-owned subsidiary, Santo Antônio Energia S.A. (“Subsidiary”), currently responsible for the construction and exploitation of the development and facilities of restricted interest transmission of the electricity powerhouse.

 

  The Concession Agreement has a term of 35 years as from the date of its signature, June 13, 2008.

Generation capacity

The construction of the Santo Antônio HEP, which expected minimum installed capacity is 3,568 MW, with the implementation of 50 “Bulb” turbines that operate in rivers with low waterfall and large flow of water, was started in the second half of 2008. The physical guarantee of energy of the Santo Antônio HEP, after full motorization, is of 2,424,2 average MW.

At December 31, 2015, the Santo Antônio HEP has 35 generating units in commercial operation, totaling 2,218 average MW of physical guarantee. In the same period of the previous year, the Santo Antônio HEP operated with three additional generating units.

Sale of electric energy

Electric energy is produced and sold by the Subsidiary as an “Independent Producer” in accordance with the Concession Agreement.

In compliance with public auction notice 05/2007 of the Santo AntônioHEP, which sets forth the sale of 70% (1,552.6 average MW) of the Santo Antônio HEP original project energy (2,218 average MW) guaranteed in the Regulated Contracting Environment (ACR), on July 25 and 28, 2008, the Agreements for Sale of Electric Energy in the Regulated Environment (CCEARs) were entered into, through the intermediation of the Electric Energy Trading Chamber (CCEE), with the 32 purchasers that took part in auction 05/2007 – ANEEL.

The balance of 30% of the original project’s guaranteed energy (665.4 average MW), as well as the energy volume resulting from the Santo Antônio HEP expansion project (206.2 average MW), was freely sold by the Company.

 

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Carbon credits

In 2013, the Subsidiary obtained authorization to register with the United Nations Organization (“UN”) to take part in the Clean Development Mechanism (“CDM”). With UN’s endorsement, the Santo Antônio HEP was the first large plant in commercial operation in Brazil to effectively generate carbon credits to the global market. In accordance with the CDM’s methodology, the volume of credits is equivalent to the greenhouse gases not emitted into the atmosphere, expanding the offer of energy generated from a clean and renewable source.

Santo Antônio HEP, which operates within the quota of 70.5m, has a ratio of installed nominal power/reservoir area of 8.88 W/m2, which is the double of minimum energy efficiency to generate carbon credits (4W/m2), thanks to the use of bulb turbines, responsible for generating energy using the river flow, not requiring the formation of a large reservoir.

Renegotiation of the Hydrological Risk – Generation Scaling Factor (GSF) Agreement

On August 18, 2015, the Federal Government issued Provisional Measure (“PM”) 688, subsequently enacted into Law 13,203 of December 8, 2015. This law establishes that the hydrological risk supported by the electric energy agents which participate in the Energy Reallocation Mechanism (ERM) may be renegotiated by the generating agents, provided it is approved by the National Electric Energy Agency (ANEEL), with effect as from January 1, 2015, against consideration by those agents. In order to grant such approval, and in view of the provisions of the law, ANEEL established, Regulatory Resolution 684 of December 11, 2015, the following criteria and other conditions for the renegotiation: i) filing the request with ANEEL up to January 15, 2016, and ii) withdrawal of lawsuits in progress.

The hydrological risk renegotiation conditions establish that the subsidiary shall pay monthly to the Centralizing Account of Tariff Flag Resources (Brazilian acronym “CCRBT”) the result of multiplying the monthly amount of energy contracted from the plant by the unitary amount of the selected risk premium, retroactively to the January 1, 2015 base date. The reimbursement of the hydrological risk in 2015, specifically, will be offset by the deferral of the risk premium payment.

In this context, the Subsidiary’s management has acted in favor of renegotiating the hydrological risk during the third quarter of 2015, in its governance bodies, and has formalized such decision of adhesion on January 13, 2016, filing the request on January 15, 2016. The Subsidiary opted for product class SP93, with associated risk premium of R$3.25 per MW/h. The effects of this adhesion are shown in the table below:

 

Reference

   Amount  

(i) Total GSF (portion protected by preliminary injunction)

     432,818   

(ii) Portion of GSF (incurred after the renegotiation)

     193,208   

(iii) Portion of GSF (renegotiation risk premium)

     239,610   

 

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  (i) Represents the total GSF amount incurred in 2015, before the decision to renegotiate, which had been provided in the Subsidiary’s results and liabilities.

 

  (ii) Corresponds to the GSF recalculated during the year and actually owing under the renegotiated conditions, which has impacted, in the financial statements at December 31, 2015, on profit (loss) for the year, and makes up the balance of accounts payable (“Trade payables” – Note 13);

 

  (iii) Represents the difference between the GSF expenditures determined before and after the decision to renegotiate. It is the portion recovered from the 2015 results, which will be included in assets as insurance premium upon its actual payment.

The premium portion corresponding to 2015 was recognized proportionately to the protected MW/h in the Subsidiary’ financial statement for that year for its nominal value, that is, not adjusted to present value since it is not a financial instrument. The unpaid installments related to a future right will only be recorded as an asset when payment is made, as they refer to a performance obligation, which amortization will occur in 9 years and 10 months until this asset will have been exhausted.

Company compliance program

With respect to Law 12,846/13, the Company and its subsidiary have a set of internal control mechanisms and procedures aimed at detecting, avoiding and remedying irregularities against itself or against third parties, so the financial statements will be free from material misstatements. Specifically in relation to controls and mechanisms to ensure that the Company’ and its subsidiary’s property, plant and equipment is free from irregularities and that the amount stated in the financial statements reflects adequately the correct amount, the Company and its subsidiary have implemented: (i) a monthly checking procedure including the issue of an engineering monitoring report, prepared by an external independent company contracted within the Subsidiary’s financing agreements , which follow the enterprise’s physical and financial schedule; (ii) inventory procedure, validation and unitization of property, plant and equipment components performed in accordance with the rules established by ANEEL based on the Electricity Sector Asset Control Manual (MCPSE) ; and (iii) checking by financial agents based on the analysis of invoices and other documents, to confirm the use of funds in the Santo Antônio HEP construction project. Up to this date we had no knowledge or recording of any type of complaints and/or accusations against the Company and/or its representatives.

Approval of the financial statements

These financial statements were approved by the Company’s Board of Directors on March 22, 2016.

 

2 Summary of significant accounting policies

The main accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

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Accounting policies specific to items presented in the balance sheet, statement of operations, statement of changes in equity and statement of cash flows are presented in their respective notes.

 

2.1 Basis of preparation

 

(a) Consolidated financial statements

The consolidated financial statements have been prepared and are being presented in accordance with accounting practices adopted in Brazil, including the pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC) as well as according to the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). Additionally, aspects of the specific Brazilian legislation issued by the National Electric Energy Agency – ANEEL, particularly regarding the structure of accounts and the way of recording events were considered, aiming at standardizing the practices with other companies of the electric sector.

In these financial statements, management is only providing the significant information used in the Company’s management.

The presentation of the parent company and consolidated statements of value added is required by the Brazilian corporate legislation and the accounting practices adopted in Brazil for listed companies, while it is not required by IFRS. Therefore, under the IFRS, the presentation of such statement is considered as supplementary information, and not part of the set of financial statements.

 

(b) Parent company financial statements

In the parent company financial statements, the subsidiary is accounted for under the equity method. The same adjustments are made both to the parent company and to the consolidated financial statements to reach the same result and equity attributable to the stockholders of the parent company.

 

(c) Changes in accounting policies and disclosures

The following new standards were issued by IASB but are not effective for 2015. The early adoption of standards, even though encouraged by IASB, has not been implemented in Brazil by the Brazilian Accounting Pronouncements Committee (CPC).

 

    IFRS 15 - “Revenue from Contracts with Customers” replaces IAS 11, “Construction Contracts”, IAS 18, “Revenue” and related interpretations and introduces the principles to be applied by an entity to determine the measure and recognition of revenue. Effective date is January 1, 2018. Management is yet to assess IFRS 15’s full impact.

 

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    IFRS 9 – “Financial instruments” addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014 and is effective as from January 1, 2018. It replaces the orientation included in IAS 39 related to the classification and measurement of financial instruments. IFRS 9 maintains but simplifies the combined measurement model and establishes three main measurement categories for financial assets: amortized cost, fair value through other comprehensive income and fair value through profit or loss. It also establishes a new model for expected credit losses, replacing the current model of incurred losses. IFRS 9 relaxes the requirements for hedge effectiveness, and demands an economic relationship between the hedged item and the hedge instrument, and that the hedge rate be the same as the one actually used by management for risk management purposes. Management is yet to assess the full impact of its adoption.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company and its subsidiary.

 

2.2 Financial assets – Classification, recognition and measurement

The Company and its Subsidiary classify their financial instruments in the loans and receivables category. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments upon initial recognition. Loans and receivables are initially carried at fair value and subsequently at amortized cost using the effective interest rate method.

 

2.3 Impairment of non-financial assets

Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the asset’s carrying amount exceeds its recoverable amount, which represents the higher of an asset’s fair value less costs to sell and its value in use. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash-generating units (CGU’s)). For the years ended December 31, 2015 and 2014, management did not identify indications that could require the recording of impairment losses for non-financial assets.

 

2.4 Estimated impairment of financial assets

The Company and its subsidiary assess whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events occurred after the initial recognition of the assets (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. For the year ended December 31, 2015, management did not identify objective evidence that could require the recognition of impairment losses on financial assets. However, for the year ended December 31, 2014, management recognized impairment of “Recoverable expenses” (Note 8).

 

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2.5 Critical accounting estimates and judgment

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies.

Accounting estimates and judgment are continuously assessed and are based on the historical experience and other factors, including expected future events considered reasonable in the circumstances.

Based on assumptions, the Company and its subsidiary make estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the current year are related to deferred income tax and social contribution asset (Note 9), useful economic life of property, plant and equipment items (Note 11), Social and environmental provisions (Note 19) and Provisions for contingencies (Note 20).

 

2.6 Net working capital - negative

At December 31, 2015, the Company and its subsidiary (Consolidated) posted excess current liabilities over current assets in the amount of R$ 543,238, arising mainly from the “Trade payables” (Note 13), “Borrowings” (Note 14.1) and Provision for contingencies (Note 20) accounts. To equalize the status of negative working capital, the subsidiary counts on a pre-approved supplementary long-term credit facility in the amount of R$ 129,000, with operating generation of cash and, if necessary, the Company counts on capital contribution to be made by its stockholders.

 

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3 Financial instruments and risk management

 

(a) Overview

The Company and its subsidiary operate with a number of financial instruments, including cash and cash equivalents, trade payables and financing.

The purpose of the financial instruments operated by the Company and its subsidiary is to manage the financial availability of its operations and to hedge against the effects of interest rate variations.

Risks involved in these operations are managed by financial market mechanisms aimed at minimizing the exposure of assets and liabilities, protecting the profitability of agreements and equity of the Company and its subsidiary.

 

(b) Risk management

The Company and its subsidiary adopt operating and financial policies and strategies approved by their Managements, which regulate the exposure to credit risk in financial instruments, so as to ensure the value, liquidity, safety and profitability of its assets, and to maintain the indebtedness level and debt profile as established in the Company’s business plan and in accordance with resolutions of the Board of Directors.

The most significant financial risks to be managed by the Company and its subsidiary are:

 

(i) Interest rate and inflation risk - Consolidated

The Subsidiary is exposed to risks of increase in interest and inflation rates at December 31, 2015. The agreement for construction of the Santo Antônio HEP is pegged to the General Market Price Index (IGP-M). A variation in this index will cause an increase in the investment cash flow.

The Subsidiary is also exposed to the variation in the interest rate of borrowings. At December 31, 2015, Santo Antônio Energia S.A. had borrowings in the amount of R$ 10,868,080, of which R$ 10,259,951 (Note 14.1), related to borrowings from the National Economic and Development Bank (BNDES), pegged to the Long-Term Interest Rate (TJLP) and has R$ 3,643,937(Note 14.2) in debentures pegged to the Extended National Consumer Price Index (IPCA).

Additionally, the Subsidiary assumed, upon the execution of Concession Agreement 001/2008 for Use of public property for generation of energy, the obligation to pay to the Federal Government the total amount of R$ 379,267, in monthly installments proportionate to the annual amount of R$ 11,852, annually adjusted by the IPCA (Note 18).

 

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At December 31, 2015, the Subsidiary does not have derivative financial instruments to hedge these risks.

 

(ii) Commodity price risk - Consolidated

Commodity price risk is that related to the variation in the prices of raw materials (commodities). During the construction of the Santo Antônio HEP, the Subsidiary is exposed to the variation in the prices of the main raw materials used in its equipment items, such as Iron - Heavy Plate, Electrolytic Copper, IPI-Metalúrgica (Col.32). The Subsidiary adopts the policy of monitoring monthly the commodity price risk.

 

(iii) Credit risk – Consolidated

Credit risk of the counterparty is the risk existing due to the counterparty’s inability to comply with its financial obligations to the Company or its Subsidiary due to insolvency.

Aiming at managing this risk, the Company’s and its subsidiary’s relationships with financial institutions are only with prime institutions with ratings provided by international agencies such as Fitch Rating, Standard & Poor’s and Moody’s Investor and duly approved by the Company’s Board of Directors through the Financial Risk Management Policy.

Part of the Subsidiary’s agreements for sale of energy is backed by rules of the commercialization of electric energy in regulated environment. Additionally, the Subsidiary seeks to minimize its credit risks through guarantee mechanisms involving receivables from its customers and, as applicable, by means of bank guarantees.

 

(iv) Liquidity risk – Consolidated

The Company and its Subsidiary permanently monitor short-, medium- and long-term, budgeted and actual cash flows, seeking to avoid possible mismatching and consequent financial losses, and to guarantee the liquidity requirements for operating needs. To equalize the negative working capital, the Subsidiary counts on a pre-approved supplementary long-term credit facility in the amount of R$ 129,000 and operating generation of cash and, if necessary, the Company counts on capital contributions by its stockholders.

 

(v) Hydrological risk - Consolidated

In view of hydrological seasonality, the energy produced by a hydroelectric plant varies greatly over time, causing an impact on the production of energy. The cyclical conditions of the system in the last few years, with low rate of flow and low storage capacity of hydroelectric power plants, have caused significant decrease of hydraulic energy generated by the Energy Reallocation Mechanism (ERM), consequently increasing the exposure of the generating agent when participating in apportionment based on the Settlement Price for Differences (PLD), causing an expenditure with the Generation Scaling Factor (GSF) on the hydroelectric generators.

 

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Accordingly, in order to reduce the exposure to this risk, the Subsidiary decided to renegotiate the hydrological risk with ANEEL, pursuant to Law 13.203/2015, product class SP93, in accordance with Regulatory Resolution 684/2015, for its sale of electric energy agreements in the Regulated Contracting Environment (ACR). The renegotiated amount is 1,498,478 average MW of the Santo Antônio HEP (Note 1).

 

(vi) Sensitivity analysis - Consolidated

Regarding the most significant risk of increased inflation, the Subsidiary estimates that, in a probable scenario, at December 31, 2016, the IPCA rate will be 7.02%. For the most significant interest rate risk, the Company and its Subsidiary estimate that, in a probable scenario, at December 31, 2016, TJLP and CDI rates will be 7.87% and 13.89%, respectively.

The Company and its Subsidiary conducted a sensitivity analysis of the effects on consolidated results arising from an increase in rates of 25% and 50% in relation to the probable scenario, considered as possible and remote, respectively.

 

                 At December 31, 2016  
     Carrying amount at
December 31, 2015
    Estimated
rates
    Probable
scenario
    Possible scenario
Risk increased by 25%
    Remote scenario
Risk increased by 50%
 

Assets

          

Cash and cash equivalents- CDI - (Note 4)

     299.963        13,89     341.623        352.038        362.453   

Guarantee deposits (Note 7 )

     545.175        13,89     620.891        639.820        658.749   

Liabilities

          

Debentures - IPCA - (Note 14.2)

     (3.643.937     7,02     (3.899.705     (3.643.937     (3.643.937

Borrowings (1) - TJLP - (Note 14.1)

     (10.259.951     7,87     (11.067.900     (11.269.887     (11.471.874

Concessions payable - IPCA - (Note 18)

     (246.197     7,02     (263.478     (267.798     (272.118

Social and environmenal provisions - IPCA (Note 19)

     (330.492     7,02     (353.689     (359.489     (365.288
  

 

 

     

 

 

   

 

 

   

 

 

 

Net liabilities exposed

     (13.635.439       (14.622.259     (14.549.253     (14.732.015
  

 

 

     

 

 

   

 

 

   

 

 

 

Net effect of variations

         (986.819     (913.813     (1.096.576

 

  (1)   The analysis does not consider the borrowing from Banco da Amazônia S.A., which funds arise from the Constitutional Fund for the Financing of the North Region (FNO). This borrowing is not pegged to the TJLP (Note 14.1(b)), its interest rate is fixed.

 

(c) Capital management - Consolidated

By managing its capital, the purpose of the Company and its Subsidiary is to safeguard the capacity to continue as a going concern to offer return to the stockholders and benefits to the other stakeholders, in addition to pursuing the ideal capital structure to reduce this cost.

 

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The financial leverage ratios were:

 

Description    December 31,
2015
    December 31,
2014
 

Borrowings (Note 14.1)

     10.868.080        9.884.117   

Debentures (Note 14.2)

     3.643.937        3.165.277   

Less: Cash and cash equivalents (Note 4)

     (299.963     (241.129
  

 

 

   

 

 

 

Net debt (A)

     14.212.054        12.808.265   

Total equity

     7.251.097        6.994.901   
  

 

 

   

 

 

 

Total capital (B)

     21.463.151        19.803.166   
  

 

 

   

 

 

 

Financial leverage ratio (C = A/B x 100)

     66,22     64,68

 

4 Cash and cash equivalents

 

     December 31,
2015
     December 31,
2014
 

Cash funds

     24         20   

Checking accounts

     18         777   

Financial investments

     

Bank deposit certificate (CDB)

     75.725         2.382   

Repurchase agreements

     224.196         237.950   
  

 

 

    

 

 

 
     299.963         241.129   
  

 

 

    

 

 

 

The average return rate of financial investments is 100.37% of the CDI variation. The financial investments mature in up to 90 days, are readily convertible into cash and are subject to an insignificant risk of change in value.

 

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Financial investments by financial institution:

 

Financial agent

  

Type of

investment

   Indexing
unit
     December 31,
2015
     December 31,
2014
 

Banco do Brasil

   CDB      CDI            1.362   

Banco do Brasil

   Repurchase agreement      CDI         74.948         106.092   

BASA

   CDB      CDI         2.065         1.020   

Bradesco

   Repurchase agreement      CDI         657         2.631   

BTG

   Repurchase agreement      CDI            75.744   

Caixa

   CDB      CDI         73.660      

Itaú

   Repurchase agreement      CDI         7         1.104   

SAFRA

   Repurchase agreement      CDI         74.016         5.015   

Votorantim

   Repurchase agreement      CDI         74.568         47.364   
        

 

 

    

 

 

 
           299.921         240.332   

 

5 Trade receivables – Consolidated

 

     December 31,
2015
     December 31,
2014
 

Consumers - Industrial supply

     109.078         69.340   

Concessionaires - Conventional supply

     191.853         211.594   
  

 

 

    

 

 

 
     300.931         280.934   
  

 

 

    

 

 

 

Trade receivables “Consumers – supply to industries” refers to receivables from energy consumers and trade receivables “Concessionaires – conventional supply” refers to receivables from energy dealers.

The Subsidiary’s billing term is usually 15 days, so the amounts of trade receivables correspond to fair value on the selling date.

The Subsidiary did not identify any evidences that its “Trade receivables” will not be realized, therefore it did not set up a provision for impairment of trade receivables.

The Subsidiary has no overdue receivables at December 31, 2015.

 

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6 Taxes for offset - Consolidated

The balance of the “Taxes for offset” account, amounting to R$ 15,720 (2014 - R$ 65,367) recorded in current and non-current assets in 2015, refers substantially to withholding PIS and COFINS levied on sales and, in 2014, to PIS and COFINS credits determined mainly on purchases of electric energy for resale.

 

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7 Guarantee deposits - Consolidated

 

     December 31,      December 31,  
     2015      2014  

Currrent

     

Debenture service reserve - 3rd issue

     11.935         9.913   

Electric Energy Trading Chamber - CCEE

     34.212         8.245   
  

 

 

    

 

 

 
     46.147         18.158   

Non-current

     

Debt service reserve - BNDES

     489.012         143.490   

O&M reserve - BNDES

     10.016         9.456   
  

 

 

    

 

 

 
     499.028         152.946   
  

 

 

    

 

 

 
     545.175         171.104   
  

 

 

    

 

 

 

The balance of guarantee deposits in current assets comprises, respectively, the amount to cover the interest on the Company’s 3 rd issue of debentures, paid semiannually, and the guarantee amount for settlement at the Electric Energy Trading Chamber (CCEE). The non-current asset for 2015 is comprised by an amount corresponding to six times the amount of the last installment of borrowing (BNDES direct and indirect, and FNO – Note 14.1) paid and, for 2014, to three times the amount of the last borrowing installment paid, in compliance with the clauses of the borrowing agreement with BNDES, as well as to the amount of R$ 9,084 (basis Feb/2014), corresponding to R$ 10,016 in December 2015, which must be held in the O&M reserve account during the whole term of the Fiduciary Assignment Agreement.

 

8 Recoverable expenses - Consolidated

 

     December 31, 2015      December 31, 2014  

Current

     

Allianz Seguros

     46      

Consórcio Construtor Santo Antônio (i)

     57.000         51.567   

Consórcio Construtor Santo Antônio (ii)

     1.452.441         1.383.211   

(-) Provision for impairment (ii)

     (678.551      (678.551
  

 

 

    

 

 

 
     830.936         756.227   
  

 

 

    

 

 

 

Non-current

     

Energia Sustentável do Brasil S.A . (iii)

     32.687         29.779   
  

 

 

    

 

 

 
     863.623         786.006   
  

 

 

    

 

 

 

Refers to disbursements that do not represent expenses for the Subsidiary and which will be reimbursed by its beneficiary. Expenses made by the Subsidiary, for which reimbursement is set forth in an agreement, are initially recognized in the Subsidiary’s profit or loss or property, plant and equipment, in accordance with their nature, and separately, as a credit to reduce this expense, the Subsidiary allocates the reimbursable portion as a contra entry to “Recoverable expenses”. Refunds are recorded at the amount of the reimbursed cost incurred and restated as set forth in each agreement. The amounts recorded in current assets, related to the Construction Consortium, must be realized in the course of 2016, concomitantly with the completion of the construction of the Santo Antônio HEP.

 

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  (i) In accordance with the Santo AntônioHEP Implementation Agreement entered into between the Subsidiary and the Santo Antônio Construction Consortium (“CCSA”), the Subsidiary must pass on to CCSA the cost for the purchase of the volume of energy at the energy tariff price resulting from the Santo Antônio HEP auction (R$ 78.87/MWh), to allow for delays in the start-up of the generating units in relation to the schedule of the 1 st amendment to the Concession Agreement;

 

  (ii) CCSA submitted to the Subsidiary a start-up schedule advancing for the second time the start-up date of the generating units from May 1, 2012 to December 15, 2011, in accordance with the 2 nd amendment to the Concession Agreement. However, the start-up schedule of the generating units was not fully met, and the result thereof generated for the Subsidiary a reimbursement from CCSA in the amount of R$ 1,452,441. The management of the Subsidiary made, in 2014, additional analyses, including legal aspects, and changed its estimate of the asset’s realization value. Accordingly, an impairment of R$ 678,551 was recognized on the total reimbursable expenditure of R$ 1,452,441, to reflect the expected amount receivable of R$ 773,890.

To settle any doubts as to the use of the contractual limit considered in the calculation of a portion of the net result from the advance of the start-up date of the plant, established in the 2 nd amendment to the Concession Agreement entered into with the National Electric Energy Agency (“ANEEL”), which gave rise to the referred impairment, the Subsidiary filed with the International Chamber of Commerce (“ICC”) the request for arbitration proceedings before the CCSA, which is confidential in accordance with ICC’s Arbitration Regulation. At December 31, 2015, the lawsuit awaits the establishment of the arbitration court.

 

  (iii) Refers to the commitment signed between the Subsidiary and Energia Sustentável do Brasil S.A. (ESBR) whereby the latter with compensate financially the Subsidiary for the change in location of the Porto Velho Collector Substation (SE Coletora), in order to satisfy the request of Porto Velho Transmissora de Energia S.A. This change has generated a cost decrease for ESBR as a result of the reduction, from what had been set forth in Public Auction Notice 006/08-ANEEL, of the extent of the transmission line which establishes the connection of the Jirau HEP with SE Coletora and an increase in the costs of the Subsidiary due to the need to increase, in relation to the provisions of Public Auction Notice 005/07-ANEEL, the extent of the transmission line which establishes the connection of the Santo Antônio HEP with SE Coletora. The commitment provides for the restatement of the balance based on the IGP-M. The Subsidiary has requested arbitration to receive its credit from ESBR.

 

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9 Deferred income tax and social contribution – Consolidated

 

  a) Composition

Income tax and social contribution recorded in the year are determined on current and deferred bases. These taxes are calculated based on the tax laws in effect on the balance sheet date and are recognized in the statement of operations. Deferred income tax and social contribution are calculated at the rates of 25% e de 9%, respectively.

Deferred income tax and social contribution are mainly recognized on: a) tax losses and social contribution tax loss carryforward; and b) FID provision – Availability Factor (Note 20) which corresponds to a temporary difference between the tax basis and the carrying amount recorded at December 31, 2015. This difference will be deductible in future years, when the provision is settled.

The total deferred tax asset amount recognized in the financial statements at December 31, 2015 is as follows:

 

     December 31,      December 31,  
     2015      2014  

Balance at the beginning of the year

     12.340         8.956   

Changes

     

Temporary provisions

     

Debenture issue transaction costs

     (18.702   

Borrowings transaction costs

     (5.477   

Provision for the availability factor - FID

     355.973      

Tax loss/ Tax loss carryforwards

     1.457.095      

Amortization of temporary difference

        (9.120

Amortization- Issue of debentures transaction costs

     3.561         1.084   

Amortization - Borrowings transaction costs

     1.209         1.123   

Amortization of use of public property

     (1.499      19.473   

Amortization of land

     (74 )   

Amortization of easements

     (2   

Amortization of preoperating expenses - Carried out in accordance with the start-up of turbines. 1/44th per month/turbine is amortized

     (3.140      (2.608
  

 

 

    

 

 

 
     1.788.944         9.951   

IRPJ - 15%

     268.342         1.493   

IRPJ surtax - 10%

     178.894         995   

IRPJ - 25%

     447.236         2.488   

CSLL - 9%

     161.005         896   
  

 

 

    

 

 

 

Tax charge

     608.241         3.384   
  

 

 

    

 

 

 

Balance at the end of the year

     620.581         12.340   
  

 

 

    

 

 

 

Tax losses and social contribution tax loss carryforward do not expire in Brazil.

 

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  b) Realization of corporate income tax and social contribution

The recognition and the amount of deferred tax assets depend on the future generation of taxable income, which requires the use of estimates of the future performance of the Company and of its subsidiary. These estimates are included in the business plan that is sent annually for approval of the Board of Directors. This plan is prepared by the Executive Board, which uses as main variables the energy sales agreement entered into with its customers, operating costs and expenses based on inputs defined by the regulatory agencies, restatement of debts based on pre-established rates (especially the corporate income tax and the IPCA). These variables are obtained from specialized external consultants, from the Company’s and its subsidiary’s historical performance and from their ability to create taxable income.

 

     Balance                                   Realization  

Assets

   2015     2016     2017     2018     2019     2020     After 2020  

Tax losses (inc.tax) and tax loss carryforward (soc. contr.)

     495.413                  495.413   

Temporary provisions - FID (ii)

     121.031        121.031             

Amortization of preoperating expenses (iii)

     4.716        137        137        137        137        137        4.031   

Amortization of land and easements (iii)

     730        26        26        26        26        26        600   

Right to allocation - UPP (iii)

     14.272        510        510        510        510        510        11.722   

Consideration of transaction costs - debt (iv)

     (15.581     (1.300     (1.300     (1.300     (1.300     (1.300     (9.081
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     620.581        120.404        (627     (627     (627     (627     502.685   

Deferred corporate income tax and social contribution assets are recognized on:

 

  (i) Tax losses and social contribution tax loss carry-forward – the Subsidiary recognized in 2015 tax credit of R$ 495,413 arising from deferred income tax and social contribution, calculated on tax losses and tax loss carryforward accumulated up to December 31, 2014;

 

  (ii) FID temporary difference – The temporary difference is related to the provision for the Availability Factor (FID) (Note 20), corresponding to the difference between the asset tax basis and the carrying amount for which this event was recorded in the financial statements at December 31, 2015. This will result in an amount deductible in future periods when the amount recorded as provision is settled;

 

  (iii) Temporarily non-taxable expenses;

 

  (iv) Tax expenses that will be reflected in the books in subsequent periods.

Considering the limits for using tax losses and the known impacts on the position of deferred taxes, the Company and its subsidiary estimate that it will be necessary to generate taxable income at the Subsidiary of about R$ 4,856,987 in the next years in order to realize the deferred tax assets presented at December 31, 2015.

 

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The Company reviews annually the projection of taxable income using its business plan as basis. If such projection indicates that the taxable income will not be sufficient to absorb the deferred tax, the asset portion that will not be recovered will be written off.

 

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10 Investments –Parent Company

The Company consolidates its wholly-owned subsidiary Santo Antônio Energia S.A.

 

(i) Information on the investment:

 

    Number of subscribed shares     Direct interest (%)     Equity     Gain (loss)  
    December 31,
2015
    December 31,
2014
    December 31,
2015
    31 de dezembro
December 31, 2014
    December 31, 2015     31 de dezembro
December 31, 2014
    December 31,
2015
    December 31,
2014
 

Santo Antônio Energia S.A.

    9.137.870.456        9.117.870.456        100        100        6.730.643        6.443.915        33.558        (2.202.228

 

(ii) Changes in the investment in the Subsidiary:

During the year ended December 31, 2015, capital contributions were made in the Subsidiary totaling R$ 253.170. Following are the changes in this investment:

 

     Santo Antônio Energia S.A.  
     2015      2014  

Balance at the beginning of the year

     7.251.457         6.685.664   

Capital contribution

     190.690         2.481.370   

Advance for future capital increase

     62.480         295.740   

Amortization of capitalized charges (Parent Company)

     (19.828      (9.088

Profit (loss) for the year

     33.558         (2.202.229
  

 

 

    

 

 

 

Balance at the end of the year

     7.518.357         7.251.457   
  

 

 

    

 

 

 

 

  (a) In order for the financial statements to actually reflect the financial statements of a single economic entity, pursuant to CPC 36 – Consolidated Financial Statements, the financial charges of the debentures issued by the Parent Company in 2009 and settled in 2013, with the specific objective of financing the construction of the Santo Antônio HEP, are presented as capitalized, in the same manner as the financial charges of the project obtained in the Subsidiary are treated. And, in order for the equity in MESA’s consolidated and individual balance sheets to be equal, the consolidated balance sheet adjustments were transferred to MESA’s parent company financial statements under the investments account. The amortization of the capitalized financial charges follows all of the criteria for depreciation of the Subsidiary’s property, plant and equipment. For this reason, there is a difference between the investee’s equity and the investments balance recorded at the parent company.

 

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11 Property, plant and equipment - Consolidated

Property, plant and equipment is recorded at acquisition or construction cost. Includes the capitalization of charges on borrowings made specifically to finance projects, net of revenues earned with these funds. The measurement of capitalizable borrowing costs, in consolidated, considers all borrowings of the Company and its subsidiary as if they were only one economic entity. Therefore, it includes charges on the debt raised by the Company and paid as capital in the Subsidiary. These charges are being appropriated on a monthly basis proportionately to the number of generating units under construction.

It also includes: (a) advances to suppliers for acquisition of goods that are part of property, plant and equipment; (b) inventory of goods for application in property, plant and equipment; (c) expenditures related to environmental actions for protection, monitoring, reforestation, recovery or compensation for social and environmental impacts; and (d) expenditures incurred to the benefit of the works as a whole.

 

           December 31, 2015      December 31,
2014
 
     Average annual
depreciation
rates %
    Historical
cost
     Accumulated
depreciation
    Net amount      Net
amount
 

Property, plant and equipment in use

            

Land

     3,20     67.171         (3.745     63.426         65.013   

Reservoirs, dams and water mains

     3,34     7.872.710         (415.328     7.457.382         6.872.907   

Buildings, civil works and improvements

     3,43     3.939.662         (204.775     3.734.887         2.365.049   

Machinery and equipment

     4,12     6.421.714         (476.877     5.944.837         5.283.340   

Furniture and fittings

     6,25     44           44      
    

 

 

    

 

 

   

 

 

    

 

 

 

Total property, plant and equipment in use

       18.301.301         (1.100.725     17.200.576         14.586.309   

Property, plant and equipment in progress

            

Land

       483           483         483   

Reservoirs, dams and water mains

       412.368           412.368         2.018.200   

Buildings, civil works and improvements

       635.875           635.875         475.234   

Machinery and equipment

       1.479.301           1.479.301         976.118   

Vehicles

       3.844           3.844         2.893   

Furniture and fittings

       6.448           6.448         4.724   

To be apportioned

       1.443.975           1.443.975         1.578.291   

Materials in storage

       51.686           51.686         45.373   

Advances to suppliers

       726.869           726.869         1.100.364   

Other

       16.582           16.582         13.660   
    

 

 

      

 

 

    

 

 

 

Total property, plant and equipment in progress

  

    4.777.431           4.777.431         6.215.340   
    

 

 

    

 

 

   

 

 

    

 

 

 

Total property, plant and equipment

       23.078.732         (1.100.725     21.978.007         20.801.649   
    

 

 

    

 

 

   

 

 

    

 

 

 

Advances to suppliers refer mainly to 5% of the total amount of the Santo Antônio HEP Implementation Agreement, discounted from 5% of total services provided and equipment delivered, plus amounts estimated in the Santo Antônio HEP agreements signed for purchase of machinery and equipment. All of the advances made are for acquisition of property, plant and equipment items.

 

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In 2015, the Subsidiary capitalized to property, plant and equipment the amount of R$ 579,558 (2014—R$ 498,543) corresponding to charges on borrowings obtained with the specific purpose of financing the construction of the Santo Antônio HEP.

The Company capitalized to property, plant and equipment, up to December 31, 2013, the financial charges of debentures totaling R$ 827,572, using the same criteria as the Subsidiary. Accordingly, the Company has R$ 702,152 recorded in property, plant and equipment in use and keeps R$ 125,415 in property, plant and equipment in progress, which will be transferred to property, plant and equipment in use as the new generating units go into commercial operation.

At December 31, 2015, the Subsidiary has commitments amounting to R$ 173,102 related to the Engineering, Procurement and Construction (EPC) contract for the construction of the hydroelectric enterprise.

Changes in property, plant and equipment for the years ended December 31 were as follows:

2015

 

     December 31, 2014      December 31, 2015  
     Net
amount
     Additions     Reclassification     Transfer to property,
plant and equipment
in use
    Depreciation     Net
amount
 

Property, plant and equipment in use

             

Land

     65.013               (1.587     63.426   

Reservoirs, dams and water mains

     6.872.907             761.959        (177.484     7.457.382   

Buildings, civil works and improvements

     2.365.049             1.463.184        (93.346     3.734.887   

Machinery and equipment

     5.283.340             861.687        (200.190     5.944.837   

Furniture and fittings

            44          44   
  

 

 

        

 

 

   

 

 

   

 

 

 

Total PPE in use

     14.586.309             3.086.874        (472.607     17.200.576   

Property, plant and equipment in progress

             

Land

     483                 483   

Reservoirs, dams and water mains

     2.018.200         440.896        (1.435.817     (610.911       412.368   

Buildings, civil works and improvements

     475.234         256.967        1.254.479        (1.350.805       635.875   

Machinery and equipment

     976.118         1.014.470        181.338        (692.625       1.479.301   

Vehicles

     2.893         951              3.844   

Furniture and fittings

     4.724         1.768          (44       6.448   

To be apportioned

     1.578.291         298.173          (432.489       1.443.975   

Materials in storage

     45.373         6.313              51.686   

Advances to suppliers

     1.100.364         (373.495           7 26.869   

Other

     13.660         2.922              16.582   
  

 

 

    

 

 

         

 

 

 

Total PPE in progress

     6.215.340         1.648.965          (3.086.874       4.777.431   
  

 

 

    

 

 

     

 

 

     

 

 

 

Total property, plant and equipment

     20.801.649         1.648.965            (472.607     21.978.007   
  

 

 

    

 

 

       

 

 

   

 

 

 

 

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2014

 

     December 31,
2013
     December 31, 2014  
     Net amount      Additions     Transfer to property
plant and equipment
in use
    Depreciation     Net
amount
 

Property, plant and equipment in use

           

Land

     52.341           14.226        (1.554     65.013   

Reservoirs, dams and water mains

     6.727.762           292.152        (147.007     6.872.907   

Buildings, civil works and improvements

     1.484.406           930.784        (50.141     2.365.049   

Machinery and equipment

     2.840.944           2.612.825        (170.429     5.283.340   
  

 

 

      

 

 

   

 

 

   

 

 

 

Total PPE in use

     11.105.453           3.849.987        (369.131     14.586.309   

Property, plant and equipment in progress

           

Land

        483            483   

Reservoirs, dams and water mains

     1.751.425         1.029.183        (762.408       2.018.200   

Buildings, civil works and improvements

     434.967         52.357        (12.090       475.234   

Machinery and equipment

     1.841.204         909.776        (1.774.862       976.118   

Vehicles

     2.078         5.324        (4.509       2.893   

Furniture and fittings

     2.748         1.976            4.724   

To be apportioned

     2.067.677         806.732        (1.296.118       1.578.291   

Materials in storage

     40.267         5.106            45.373   

Advances to suppliers

     1.368.484         (268.120         1.100.364   

Outros

     10.679         2.981            13.660   
  

 

 

    

 

 

   

 

 

     

 

 

 

Total PPE in progress

     7.519.529         2.545.798        (3.849.987       6.215.340   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total property, plant and equipment

     18.624.982         2.545.798          (369.131     20.801.649   
  

 

 

    

 

 

     

 

 

   

 

 

 

The Subsidiary adopts depreciation under the straight-line method. Depreciation is based on the amount of the asset proportionately to the number of generating units in operation that it serves in relation to the number of generating units that the asset will serve when the construction phase of the Santo Antônio HEP is concluded.

ANEEL is responsible for establishing the economic useful life of property, plant and equipment items of the Brazilian electric sector, with periodic reviews of estimates. The rates established by the agency are used to calculate indemnity at the end of the concession period and they are recognized as a reasonable estimate of the useful life of concession assets. Additionally, the depreciation of assets which are part of the Santo Antônio HEP original project is limited to the concession period, since there is no forecast of indemnity of a residual amount of these assets at the end of the concession. Accordingly, the useful lives established by ANEEL or the concession period was used as the basis to depreciate the property, plant and equipment items, whichever is the shortest period, since the Company and its subsidiary understand that the useful lives established by ANEEL represent the useful lives of assets for accounting purposes.

Based on the analysis mentioned in Note 2.5, the Company and the subsidiary managements will operate at their optimal capacity in the estimated period, and the assets are recoverable in full.

 

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12 Intangible assets - Consolidated

 

           December 31, 2015      December 31, 2014  
     Average annual
amortization
rate %
    Historical
cost
     Accumulated
amortization
    Net
amount
     Net
amount
 

Intangible asset in use

            

Permanent easement

     3,20     737         (88     649         672   

Software

     20,00     8.795         (4.805     3.990         5.677   

Right of concession - Use of public property (UPP)

     3,20     199.339         (23.921     175.418         181.797   
    

 

 

    

 

 

   

 

 

    

 

 

 

Total intangible assets in use

       208.871         (28.814     180.057         188.146   

Intangible assets in progress

            

Software

       17.222           17.222         8.227   

Permanent easement

       5.100           5.100      
    

 

 

      

 

 

    

 

 

 

Total intangible assets in progress

       22.322           22.322         8.227   
    

 

 

    

 

 

   

 

 

    

 

 

 

Total intangible assets

       231.193         (28.814     202.379         196.373   
    

 

 

    

 

 

   

 

 

    

 

 

 

 

13 Trade payables

 

     December 31,      December 31,  
     2015      2014  

Current

     

Supply of electric energy

     13.717         40.579   

CCEE (purchase of short-term energy)(i)

     504.755         266.242   

Charges for the use of electric network (ii)

     73.351         60.788   

Materials and services

     85.969         354.444   

Santo Antônio Construction Consortium (iii)

     298.425         464.260   
  

 

 

    

 

 

 
     976.217         1.186.313   
  

 

 

    

 

 

 

 

  (i) The balance of the Electric Energy Trading Chamber (CCEE) account represents a debt position of SAE in energy purchase and sale operations carried out under that chamber. In addition to energy balance, CCEE is responsible for the collection of charges such as the Availability Factor (FID) and Generation Scaling Factor (GSF). At December 31, 2015, the recorded amount includes R$ 193,208 related to the GSF renegotiation (Note 1).

 

  (ii) Charges for the use of the electric network – is an obligation arising from agreement signed with the Electric System National Operator (ONS) and transmission concessionaires for energy transmission services. The amounts are determined based on the tariff for the use of basic network transmission and the amount of use of the transmission system contracted by Santo Antônio HEP.

 

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  (iii) Expenses incurred with strikes and stoppages occurred between 2009 and 2013, which resulted in the increase of the costs of the EPC contract due to productivity losses and the granting of salary increases and other benefits to consortium workers, are recorded under the “Santo Antônio Construction Consortium” caption. In 2015, the Subsidiary settled the amount of R$ 207,968 thousand related to expenses incurred with strikes and stoppages between 2009 and 2012, which are guaranteed by CCSA through enforceable guarantee upon the determination of the debts (strike effects) and credits (reimbursable expenditures). When calculating reimbursable expenditures, the impacts arising from the Subsidiary’s claims before ANEEL should be considered.

 

14 Borrowings and debentures– Consolidated

Borrowings and debentures are recognized initially at fair value, net of transaction costs incurred, and are subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the total amount payable is recognized in the statement of operations over the period the borrowings are outstanding using the effective interest rate method.

Financial instruments which redemption is mandatory on a specific date are classified as liabilities.

Borrowings and debentures are classified as current liabilities unless the Company and its subsidiary have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Borrowing costs directly related to the acquisition, construction or production of a qualifying asset that requires a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of that asset when it is probable that future economic benefits associated with the item will flow to the entity and costs can be measured reliably (Note 11). The other borrowing costs are recognized as finance costs in the period in which they are incurred.

 

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14.1 Borrowings – Consolidated

 

     Currency     

Financial charges

   December 31, 2015      December 31,
2014
 

BNDES - Indirect (a)

   R$         TJLP      222.985         194.652   

BNDES - Direct(a)

   R$         TJLP      210.427         184.841   

Transaction costs to be amortized (CPC 08) - BNDES (a)

           (14.134   

Banco da Amazônia S.A. - FNO (b)

   R$         Interest of 10% p.a.      21.637         12.953   
        

 

 

    

 

 

 

Current liabilities

           440.915         392.446   
        

 

 

    

 

 

 
     Currency     

Financial charges

   December 31, 2015      December 31,
2014
 

BNDES - Indirect (a)

   R$         TJLP      4.990.005         4.522.461   

BNDES - Direct (a)

   R$         TJLP      4.836.534         4.371.549   

Transaction costs to be amortized (CPC 08) - BNDES (a)

   R$              (11.331      (21.285

Banco da Amazônia S.A. - FNO (b)

   R$         Interest of 10% p.a.      611.957         618.946   
        

 

 

    

 

 

 

Non-current liabilities

           10.427.165         9.491.671   
        

 

 

    

 

 

 
           10.868.080         9.884.117   
        

 

 

    

 

 

 

 

(a) Banco Nacional de Desenvolvimento Econômico e Social - BNDES

The installments released arise from the financing agreement with the National Bank for Economic and Social Development (BNDES), the Direct Financing Agreement 08.2.1120.1 in the amount of R$ 3,092,586 and the Repass Agreement 01/2009 in the amount of R$ 3,042,586 through financial agents. A portion of the supplementary financing funds has also been released and both the Supplementary Direct Financing Agreement 12.2.1307.1 and the Supplementary Repass Agreement 01/2013 have the same amount of R$ 995,000 each.

The referred financing agreements are intended for the implementation of the Santo Antônio HEP (Note 1). The main conditions are:

 

  (i) Maturity of the installments – non-current (principal and charges)

 

     Non-current  
     2017      2018      2019      2020      2021      After 2021      Total  

Principal and charges

     488.352         575.982         582.963         582.963         582.963         7.013.316         9.826.539   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     488.352         575.982         582.963         582.963         582.963         7.013.316         9.826.539   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (ii) Guarantees

 

  (a) Pledge of the total number of the Subsidiary’s shares owned by the Company, which are delivered to BNDES by means of a pledge of shares and other covenants agreement;

 

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  (b) Fiduciary assignment between the Subsidiary and BNDES involving its ownership rights in view of the Concession Agreement for the Use of Public Property for the generation of electric energy, including the credit rights of its ownership related to Electric Energy Purchase and Sale Agreements (CCVEs) and the Energy Sales in Regulated Environment Agreements (CCEARs), Purchase of Carbon Emission Reduction Agreements (CCRECs), should they be signed, and conditional assignment of the agreement for the Santo Antônio Hydroelectric Plant execution project;

 

  (c) Stockholders’ support and other covenants to ensure payment of any obligations of the financing agreement;

 

  (d) Stockholders’ support to cover shortages that may occur during the execution of the project, in addition to frustration of the sources of funds established to be used in the project’s investments;

 

  (e) Eletrobrás and Cemig guarantees to ensure payment of any obligations of the financing agreements and shortages that may occur during execution or frustration of the sources of funds established for the project;

 

  (f) Supplementary stockholders’ support and other covenants to ensure payment of any obligations of the supplementary financing agreement.

 

  (iii) Restrictive covenants

The financing contracted by the Subsidiary from BNDES, previously mentioned, contains covenants, among other restrictive clauses, on the relation between total assets and equity, which are being duly complied with by the Subsidiary, except for the debt service coverage ratio (ICSD) established by BNDES, minimum of 1.2, calculated in the period from January through December 2014 and 2015, for which the Subsidiary obtained a waiver from all financial agents and debenture holders in December 2014 and December 2015, respectively.

 

(b) Banco da Amazônia S.A.

The installments released arise from a financing agreement entered into by the Subsidiary and Banco da Amazônia S.A. on March 11, 2009, and approved based on Executive Board Decision 1.120/2008, of December 16, 2008, with the Company and its stockholders as intervening parties, in the total amount of R$ 503,420, which funds arise from the Constitutional Fund for the Financing of the North Region (FNO). The objective of the referred financing agreement is the implementation of the Santo Antônio Hydroelectric Plant (Note 1). The main conditions of the financing are:

 

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  (i) Maturity of the installments - non-current (principal and charges)

 

     Non-current  
     2017      2018      2019      2020      2021      After 2021      Total  

Principal and charges

     44.472         44.472         44.472         44.472         44.472         389.597         611.957   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     44.472         44.472         44.472         44.472         44.472         389.597         611.957   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (ii) Guarantees and restrictive covenants

Banco da Amazônia shares the same guarantees and restrictive covenants presented in Note 14.1 (a) (ii) and (iii).

 

(c) Changes in borrowings

 

     Current      Non-current  

Balance at December 31, 2014

     392.446         9.491.671   

Financial charges accrued

     585.071         342.903   

Financial charges paid

     (622.487   

Amortization of principal

     (377.916   

Borrowings

        1.060.573   

Transaction costs

     (1.226      (2.955

Transfers

     465.027         (465.027
  

 

 

    

 

 

 

Balance at December 31, 2015

     440.915         10.427.165   
  

 

 

    

 

 

 

 

14.2 Debentures – Consolidated

 

                        December 31, 2015     December 31, 2014  
   

Series

  Unit value (in reais)    

Remuneration

  Principal     Charges     Transaction costs     Total     Total  

1st issue (a)

  1st and 2nd             (50     (50  

2nd issue (b)

  Single   R$ 100.000,00      IPCA + interest of 6.2% p.a.       375        (560     (185     226   
 

1st

    IPCA + interest of 7.05% p.a.       3.314        (549     2.765        3.047   

3rd issue (c)

    R$ 10.000,00               
 

2nd

    IPCA + interest of 7.49% p.a.       8.789        (1.455     7.334        8.096   
         

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

            12.478        (2.614     9.864        11.369   
 

1st

        971.587        215.017        (532     1.186.072        1.008.674   

1st issue (a)

    R$ 1.000,00      IPCA + interest of 6.5% p.a.          
 

2nd

        971.587        166.515        (532     1.137.570        967.433   

2nd issue (b)

  Single   R$ 100.000,00      IPCA + interest of 6.2% p.a.     523.723          (3.407     520.316        469.220   
 

1st

    IPCA + interest of 7.05% p.a.     229.540          (3.793     225.747        202.119   

3rd issue (c)

    R$ 10.000,00               
 

2nd

    IPCA + interest of 7.49% p.a.     573.850          (9.482     564.368        506.462   
       

 

 

     

 

 

   

 

 

   

 

 

 

Non-current liabilities

          3.270.287        381.532        (17.746     3.634.073        3.153.908   
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          3.270.287        394.010        (20.360     3.643.937        3.165.277   
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(a) Subsidiary – 1 st issue

In September 2012, the Subsidiary entered into an agreement for the issue of 1,520,120 debentures non-convertible into shares, with real guarantee and additional guarantees, divided into two series, the first one received on October 25, 2012, in the amount of R$ 760,060 (R$ 770,448, restated up to the date of receipt) and the second series received on June 28, 2013, in the amount of R$ 760,060 (R$ 809,346, restated up to the date of receipt), with the Government Severance Indemnity Fund for Employees Investment Fund (FI-FGTS) as debenture holder, Pentágono S.A. Distribuidora de Títulos e ValoresMobiliários as fiduciary agent and representative of the debenture holder, and the Company as intervening consenting party.

The objective of this issue was to raise funds for the development, implementation and construction of the Santo Antônio HEP original project and its associated transmission system for exploitation of the concession (Note 1).

FI-FGTS, as debenture holder, shares the same guarantees presented in Note 14.1 (a) (ii). The restrictive covenants of this agreement are being adequately complied with by the Subsidiary.

The 1 st series of this issue matures in 15 annual installments starting 2023 and the 2 nd matures in 15 annual installments starting 2024. The annual amounts of the debenture installments are stated in item (d) of this Note.

 

(b) Subsidiary – 2 nd issue

In December 2012, the Subsidiary issued 4,200 nonconvertible into shares unsecured debentures, with additional real and fidejussory guarantee, in a single series, received on January 24, 2013, in the restated amount of R$ 424,924. The unitary nominal value of the debentures is R$ 100, totaling R$ 420,000, with Pentágono S.A. Distribuidora de Títulos e ValoresMobiliários as fiduciary agent representing the communion of debenture holders and the Company as intervening consenting party.

The objective of this issue was to raise funds for the development, implementation and construction of the Santo Antônio HEP original project and its associated transmission system for exploitation of the concession (Note 1).

The debenture holders share the same guarantees presented in Note 14.1 (a) (ii). The restrictive covenants of this agreement are being adequately complied with by the Subsidiary.

Interest is paid on a semiannually basis, while the principal matures as follows: 5.5% on 12.27.2017; 17.5% on 12.27.2019, 25% on 12.27.2020; 24% on 12.27.2021; and the balance on 12.27.2022. The annual amounts of the debenture installments are stated in item (d) of this Note.

 

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(c) Subsidiary – 3 rd issue

On April 15, 2014, the Subsidiary issued 70,000 nonconvertible into shares unsecured debentures, with additional real and fidejussory guarantee, divided into two series, totaling R$ 700 million, for public distribution, pursuant to Instruction 400 of December 29, 2003 of the Brazilian Securities Commission (CVM), with Pentágono S.A. Distribuidora de Títulos e Valores Mobiliários as fiduciary agent and representative of the debenture holders and the Company as intervening consenting party. The two series were received between May 2 and 5, 2014, the 1 st series totaling R$ 200 million (R$ 201 million restated up to the date of receipt) and the 2 nd series totaling R$ 500 million (R$ 504 million, restated up to the date of receipt).

The objective of this issue was to raise funds for making viable and implementing the 50 generating units of Santo Antônio HEP.

The debenture holders of this 3 rd issue share the same guarantees and restrictions presented in Note 14.1 (a) (ii) and (iii).

Interest is paid on a semiannually basis, while the principal matures as follows: 1 st series – 16.4% on 4.15.2020 – 49.3% on 4.15.2021 and the balance on 4.15.2022; 2 nd series – 25.1% on 4.15.2022 – 55.6% on 4.15.2023 and the balance on 4.15.2024. The annual amounts of the debenture installments are stated in item (d) of this Note.

 

(d) Maturity of debenture installments – non-current (principal and charges)

 

     Non-current  
     2017      2018      2019      2020      2021      After 2021      Total  

Principal and charges

     28.805            91.651         168.575         238.857         3.123.931         3.651.819   
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     28.805            91.651         168.575         238.857         3.123.931         3.651.819   
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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(e) Changes in debentures

 

     Current      Non-current  

Balance at December 31, 2014

     11.369         3.153.908   

Financial charges accrued

     87.615         474.935   

Financial charges paid

     (86.506   

Amortization of transaction costs

     2.616      

Transfer of transaction costs

     (5.230      5.230   
  

 

 

    

 

 

 

Balance at December 31, 2015

     9.864         3.634.073   
  

 

 

    

 

 

 

 

15 Taxes and contributions

 

     December 31,
2015
     December 31,
2014
 

Current

     

ICMS

     12.055         8.736   

ICMS - difference of tax rates (i)

     15.700         14.073   

INSS

     890         790   

ISS

     1.145         5.975   

Other

     1.963         1.184   
  

 

 

    

 

 

 
     31.753         30.758   

Non-current

     

ICMS - difference of tax rates (i)

     38.377         41.941   
  

 

 

    

 

 

 
     70.130         72.699   
  

 

 

    

 

 

 

 

(i) The Subsidiary opted for the tax benefit established in State Decree/RO 18.496, of January 8, 2014, which reduced to 2% the ICMS DA (Rate Differential), arising from the receipt of goods or assets intended for the installation, construction, operation and maintenance of the hydroelectric plant in interstate transactions. The balance of the tax payable of R$ 54,077, recorded in current and non-current liabilities, corresponds to receipts recorded in the period from 2009 to June 2014 and is being paid in 60 monthly installments since July 2014. The balance of the installment payment is restated annually based on the standard fiscal unit (UPF) of the State of Rondônia subject to interest of 1% per month.

 

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Estimated installments of ICMS rate differential in non-current liabilities:

 

2017

     13.641   

2018

     15.741   

2019

     8.995   
  

 

 

 
     38.377   
  

 

 

 

 

16 Advances from customers – Consolidated

In 2011, the Subsidiary signed electric energy sale agreement 211/2011 with BTG Pactual with a term of supply from January 1, 2012 to December 31, 2014. The Subsidiary received on July 11, 2012 an advance of R$ 261,531.

On December 17, 2014, the Subsidiary signed with BTG Pactual two new agreements for the Sale of Conventional Electric Energy to supply energy during the months of December 2014 and January 2015. On December 18, 2014, BTG Pactual advanced R$ 154,789 as payment for these sales.

On February 6, 2015, the Subsidiary received R$ 292,395 net of taxes, as advance from customers related to energy sale agreements signed with Furnas Centrais Elétricas S.A., Cemig Geração e Transmissão S.A. and Odebrecht Comercializadora de Energia S.A..

The amounts advanced are amortized monthly in accordance with the supply of energy contracted, as shown below:

 

     Current      Non-current  

Balance at January 1, 2014

     117.914      

Advances

     154.789      

Monetary restatement - IPCA

     13.526      

Recognition of revenue

     (239.545   
  

 

 

    

 

 

 

Balance at December 31, 2014

     46.684      
  

 

 

    

 

 

 

Advances

     74.667         225.333   

Monetary restatement - IPCA

        35.608   

Monetary restatement - CDI

     12.030      

Recognition of revenue

     (46.684   
  

 

 

    

 

 

 

Balance at December 31, 2015

     86.697         260.941   
  

 

 

    

 

 

 

 

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17 Performance bond – Consolidated

Refers to the withholding of 5% of the amount advanced on the agreements signed for the purchase of machinery and equipment for the Santo AntônioHEP, especially for the construction, transportation and assembly of the 50 energy generating turbines and control panels. The amount withheld is the guarantee of delivery of the products within the period of time established. At December 31, 2015, the amount of R$ 333,759 (2014 - R$ 279,837) is recorded in liabilities, of which R$ 114,169 (2014 – R$ 95,188) in current liabilities and R$ 219,590 (2014 – R$ 184,649) in non-current liabilities.

 

18 Concessions payable – Consolidated

This refers to an obligation assumed by the Subsidiary in Concession Agreement 001/2008 for Use of Public Property for the generation of energy, to pay to the Federal Government the total of R$ 379,267, in equal monthly installments, as from the date the first generating unit went into commercial operation, on March 30, 2012, up to the 35 th year of concession. The payment amount is restated annually based on the IPCA. The total amount of the obligation is recorded at the total present value of the UPP until the end of the concession agreement discounted at the rate of 6.94% p.a.

Aiming at adequately reflecting the pecuniary consideration and the respective obligation to the Federal Government, the amounts of the concession were recorded in intangible assets (Note 12) as contra entry to liabilities.

 

(a) Changes

 

     Current      Non-current  

Balance at December 31, 2014

     17.502         209.212   

Restatement - IPCA

        49.275   

Adjustment to present value

        (11.503

Payments

     (18.289   

Transfers

     20.088         (20.088
  

 

 

    

 

 

 

Balance at December 31, 2015

     19.301         226.896   
  

 

 

    

 

 

 

 

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(b) Maturities of the concession payable recorded in non-current liabilities

 

2017

     20.069   

2018

     20.549   

2019

     20.918   

2020

     21.273   

2021

     21.642   

2022 a 2043

     122.445   
  

 

 

 
     226.896   
  

 

 

 

 

19 Social and environmental provisions – Consolidated

The Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) granted environmental licenses to the Subsidiary, and they impose conditions for the construction of the development. Such obligations, that are related to environment protection actions, monitoring, reforesting, recovery and compensation for social and environmental impacts, were estimated and are monitored by the Subsidiary’s Management. These expenditures related to the construction were estimated and recorded as cost of property, plant and equipment, in Reservoir, dams and water mains. That estimate was made by the Subsidiary’s sustainability and environment area and submitted to approval by the Company’s Board of Directors at the time of approval of the company’s business plan.

 

     December 31,
2015
     December 31,
2014
 

Current

     

Basic environmental programs (i)

     51.782         99.205   

Environmental compensation (ii)

     12.108         12.108   
  

 

 

    

 

 

 
     63.890         111.313   

Non-current

     

Basic environmental programs (i)

     197.207         188.405   

Environmental compensation (ii)

     69.395         59.764   
  

 

 

    

 

 

 
     266.602         248.169   
  

 

 

    

 

 

 
     330.492         359.482   
  

 

 

    

 

 

 

 

(i) The Subsidiary’s management estimates of the social and environmental expenses that the Subsidiry will incur in order to mitigate the impact caused by the construction to the Santo Antônio HEP, in compliance with the programs established in the Installation License 540/2008 and Operation License 1,044/2011 issued by IBAMA are recorded under the “Basic environmental programs” caption. These licenses establish that the following Basic Environmental Programs (PBA) among others, be performed:

 

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    Groundwater Table Monitoring Program;

 

    Seismological Monitoring Program;

 

    Climate Monitoring Program;

 

    Flora Conservation Program;

 

    Fauna Conservation Program;

 

    Ictiofauna Conservation Program;

 

    Public Health Program;

 

    Relocation of Affected Population Program;

 

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(a) Changes in environmental provisions during the year ended December 31, 2015

 

     Circulante      Não circulante  

Saldo em 31 de dezembro de 2014

     99.205         188.405   

Atualização monetária - IPCA

        26.113   

Realizações

     (64.734   

Transferências

     17.311         (17.311
  

 

 

    

 

 

 

Saldo em 31 de dezembro de 2015

     51.782         197.207   
  

 

 

    

 

 

 

 

(ii) The amount recorded in “Environmental compensation”, calculated based on Law 9,985/00 and on Decree 6,848/09, corresponds to 0.5% (R$ 56,159) of the reference value of the enterprise, as defined in Operation License 1,044/11, issued by IBAMA. These funds, which are used to compensate for environmental impacts caused by the construction work and which at December 31, 2015 amount to R$ 12,108 in current liabilities (2014 – R$ 12,108) and R$ 69,395 in non-current liabilities (2014 – R$ 59,764), are being restated based on the SELIC, in accordance with regulatory instructions issued by IBAMA, which replaced the IPCA-e restatement index with Selic.

 

20 Provision for contingencies – Consolidated

The existing contingent liabilities and provisions are mainly linked to discussions in the legal and administrative spheres and arise mostly from labor, environmental, civil and tax lawsuits.

Based on the opinion of their external legal advisors, the Company’s and the subsidiary’s managements classify these lawsuits in accordance with their probability of loss, as follows:

 

  a) Probable loss – includes lawsuits whose probability of loss is higher than of success or, the probability of loss is higher than 50%.

 

  b) Possible loss – these are lawsuits whose possibility of loss is higher than remote. They may be lost, however the elements available are not sufficient or clear enough to make it possible to conclude that they will be lost or won. In terms of percentage, the probability of loss is between 25% and 50%. The Company and its subsidiary do not set a provision for these lawsuits, which are commented on in a note.

 

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(a) Probable risk

 

(i) Regulatory

FID (Availability Factor)

On July 31, 2015, the Federal Regional Court of the 1 st Region granted the Subsidiary’s request for temporary relief to suspend the application of the Availability Factor (FID) related to the Santo Antônio HEP generating units not delivered by the Electric System National Operator (ONS). The referred decision orders that the National Electric Energy Agency (ANEEL) and the Electric Energy Trading Chamber (CCEE) adopt the procedures that are necessary for the effectiveness of such decision in the accounting and settlements and the referred chamber. The balance of R$ 355,973 represents the effect of the limits of the application of FID on the Santo Antônio HEP.

 

(ii) Administrative environmental

Refers to the notice of infringement issued on December 23, 2008, by the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) of R$ 7,700. The reason for the notice is to impose a fine on the Subsidiary for alleged environment-damaging behavior characterized by the alleged mortality of 11,000 kg of various species of fish as a result of possible pollution in the cofferdams of the Santo Antônio HEP, in the Madeira river, city of Porto Velho, State of Rondônia.

On January 13, 2009, the Subsidiary presented an administrative defense. On July 19, 2011, the IBAMA Technical Team informed about the increase in the amount of the fine and notified the Subsidiary to present the Final Allegations. On August 8, 2011, the Subsidiary presented a manifestation about the fine increase and Final Allegations. On November 25, 2014 the denial of the Subsidiary’s defense was received. On December 15, 2014, the Subsidiary filed an administrative appeal against the decision of denial. According to the understanding of its lawyers, a probable loss of R$ 10,920 related to the merits of the notice of infringement (2014 - R$ 9,664) and possible loss with respect to the penalty aggravations mentioned in the referred notice are expected.

 

(iii) Civil

This refers to an action for damages to a trader who alleges that his business premises were affected by the flooded area as a result of the construction of the hydroelectric plant. Indemnity is calculated at R$ 63.

 

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(b) Possible risk

At December 31, 2015, lawsuits amounting to R$ 2,387,965, shown below, are considered as possible losses. These lawsuits are regularly revalued by the Company and subsidiary managements and legal advisors and do not require the recognition of provisions in the financial statements.

 

     December 31, 2015  

Labor

     32.948   

Civil

     1.795.386   

Administrative - Environmental

     17.490   

Administrative - Tax

     542.141   
  

 

 

 
     2.387.965   
  

 

 

 

Following are the main lawsuits whose risk of loss is considered possible:

 

(i) Labor

Various lawsuits, in most of which the Subsidiary is subsidiarily liable, in which the claimants seek, among others, the payment of overtime and health risk premium.

 

(ii) Civil

The majority of civil lawsuits refer to indemnities sought by individuals who consider that they suffer the impact of the filling of the plant’s reservoir or who intend to increase the indemnities received on account of expropriations.

 

(iii) Administrative environmental

Various notices of infringement related to environmental issues such as mortality of fish and ground clearance by fire in areas of the Subsidiary.

 

(iv) Administrative - taxes

Administrative proceedings to discuss the non homologation of requests for compensation formally submitted to the Special Federal Revenue Office, as well as to discuss compensation for Withholding Income Tax (IRRF) and notifications from the Municipal Department of Finance of the city of Porto Velho and from the State Secretariat of Finance of the State of Rondônia.

 

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21 Other provisions - Consolidated

At December 31, 2015, the amount of R$ 210,325 (2014 – R$ 176,698) refers to reimbursement to CCSA by the Subsidiary of costs related to the extension of the start-up schedule due to stoppages caused by strikes in the years from 2009 to 2013 (Act of God – force majeure events) at the Santo Antônio HEP construction site.

 

22 Deferred income tax and social contribution liability

At December 31, 2015, the deferred tax amount refers to temporary differences arising from the capitalization of financial charges.

Changes in the deferred taxes account is as follows:

 

     December 31,      December 31,  
     2015      2014  

Balance at the beginning of the year

     274.564         277.654   

Changes

     

Amortization of capitalized charges

     (19.828      (9.088
  

 

 

    

 

 

 
     (19.828      (9.088

IRPJ - 25%

     (4.957      (2.272

CSLL - 9%

     (1.785      (818
  

 

 

    

 

 

 

Tax charge

     (6.742      (3.090
  

 

 

    

 

 

 

Balance at the end of the year

     267.822         274.564   
  

 

 

    

 

 

 

The Company estimates that the deferred tax liability will be realized as follows:

 

     Balance      Realization  

Liabilities

   2015      2016      2017      2018      2019      2020      After 2020  

Amortization of capitalized financial charges

     267.822         9.046         9.046         9.046         9.046         9.046         222.592   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     267.822         9.046         9.046         9.046         9.046         9.046         222.592   

Deferred corporate income tax and social contribution liabilities are realized through amortization of the capitalized financial charges, calculated in accordance with the end of the concession period and the progressive realization of the start-up schedule of the turbines.

 

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23 Equity

 

(i) Subscribed and paid-up capital

At December 31, 2015, the Company’s subscribed and paid-up capital amounts to R$ 9,761,952 (2014 – R$ 9,455,706) divided into 9,761,952,724 (2014 – 9,455,705,724) nominative common shares, without par value, whose ownership is distributed among the following stockholders:

 

     Amounts in R$ thousand         
     December 31,
2015
     December 31,
2014
     Interest (%) at December
31, 2015
 

Cemig Geração e Transmissão S.A.¹

     915.667         915.667         10,00   

Eletrobrás - Furnas

     3.875.302         3.710.332         39,00   

Fundo de Investimento em Participações Amazônia Energia

     1.987.335         1.914.135         20,00   

Odebrecht Energia do Brasil S.A.

     1.848.221         1.780.145         18,60   

SAAG Investimentos S.A.¹

     1.135.427         1.135.427         12,40   
  

 

 

    

 

 

    

 

 

 
     9.761.952         9.455.706         100,00   
  

 

 

    

 

 

    

 

 

 

On October 21, 2014, in the minutes of the Extraordinary Stockholders’ Meeting (“ESM”), the Company’s capital increases of R$ 1,590,000 were approved to increase SAE’s capital, upon the issue of 1,590,000,000 registered common shares, for one real (R$ 1.00) each, to be paid up as follows: (a) R$ 810,000 upon subscription; (b) R$ 414,000 on October 25, 2014; and (c) the balance, corresponding to R$ 366,000 on January 10,2015. At December 31, 2015, the position is as shown below:

 

Stockholder   Interest (%)
at December 31, 2015
    Subscribed
and paid-up capital
    Payments
with suspended
term for
exercising
 

Cemig Geração e Transmissão S.A.¹

    10,00     81.000        78.000   

Eletrobrás - Furnas

    39,00     620.100     

Fundo de Investimento em Participações

     

Amazônia Energia

    20,00     318.000     

Odebrecht Energia do Brasil S.A.

    18,60     295.740     

SAAG Investimentos S.A.¹

    12,40     100.440        96.720   
 

 

 

   

 

 

   

 

 

 
    100,00     1.415.280        174.720   

 

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¹ On November 19, 2014, SAAG Investimentos S.A. (“SAAG”) and CEMIG Geração e Transmissão S.A. (“CEMIG”) filed an interlocutory injunction against Madeira Energia S.A. - MESA (“MESA”) requesting the granting of an injunction for the suspension, until the judgment of merits by the Arbitration Court, which organization was requested on November 19, 2014, before the Market Arbitration Chamber, of the deadline for exercise, by SAAG and CEMIG, of the preemptive right for subscription and payment of its portion proportionate to MESA’s capital increase, in the amount of R$ 174.72 million, approved at the Extraordinary Stockholders’ Meeting of MESA held on October 21, 2014.

Additionally, the suspension of all effects of the resolutions related to SAAG and CEMIG and their interests in MESA was requested by the applicant stockholders, especially regarding the dilution and penalties set forth in MESA’s Shareholders Agreement.

The injunction was granted on November 21, 2014 by the 39 th Civil Court of the Central Judicial District of São Paulo. An arbitration proceeding was established against MESA before the Market Arbitration Chamber, held in secrecy, pursuant to the Arbitration Regulation of the Market Arbitration Chamber. At December 31, 2015, said arbitration is awaiting judgment.

 

24 Earning (loss) per share

The table below establishes the calculation of net earnings (loss) per lot of one thousand shares for the years ended December 31, 2015, 2014, and 2013 (in thousands, except the amount per lot of one thousand shares, presented in reais):

 

     Years ended December 31  
     2015      2014      2013  

Profit (loss) for the year

     18.026         (2.208.060      (47.738

Weighted average number of common shares

     9.706.354.459         7.690.295.787         5.912.445.697   
  

 

 

    

 

 

    

 

 

 

Basic and diluted loss per thousand common shares (in reais)

     1,86         (287,12      (8,07

 

25 Net operating revenue – Consolidated

 

(a) Sale of electric energy

Revenue from operations with electric energy is recognized in the results on a monthly basis, in accordance with the delivery of the energy volumes set forth in the energy sale and supply agreement. Revenue is not recognized if its realization is uncertain.

 

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     2015      2014      2013  
                   (unaudited)  

Sale of energy to industries

     585.444         662.227         915.470   

Supply of electric energy

     2.391.523         2.214.633         850.363   

Short-term energy

        12.608      
  

 

 

    

 

 

    

 

 

 
     2.976.967         2.889.468         1.765.833   

(-) Revenue deductions

        

R & D

     (26.049      (25.206      (14.824

ICMS

     (77.884      (84.171      (115.978

PIS and COFINS

     (268.165      (259.491      (152.612
  

 

 

    

 

 

    

 

 

 
     (372.098      (368.868      (283.414

Net revenue from sale of energy

     2.604.869         2.520.600         1.482.419   
  

 

 

    

 

 

    

 

 

 

Share of net revenue related to the 2nd advance schedule

        (176.640      (181.834
  

 

 

    

 

 

    

 

 

 

Net operating revenue

     2.604.869         2.343.960         1.300.585   
  

 

 

    

 

 

    

 

 

 

Revenues from the sale of energy to industry arise from the sale of energy to consumers, while the supply of electric energy represent sales to energy dealers.

At December 31, 2015, the Santo Antônio HEP has 35 generating units in commercial operation, totaling 2,218 average MW of physical guarantee (Note 1).

 

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In November 2014, the sale of energy of the second advance block ended as the physical guarantee related to the 44 generating units had been reached. Accordingly, there is no longer share of results related to the 2 nd advance schedule with CCSA.

 

26 Operating expenses

 

(a) Cost of electric energy service - Consolidated

 

                                        Years ended December 31,  
    2015     2014     2013  
    Cost of services     Cost of services     Cost of services  
    Electric energy     Operations     Total     Electric energy     Operations     Total     Electric energy     Operations     Total  
                                                    (unaudited)  

Short-term energy - CCEE*

    (700.427       (700.427     (1.782.604       (1.782.604     (134.354       (134.354

Energy purchased for resale

    (213.306       (213.306     (1.156.907       (1.156.907     (1.066.033       (1.066.033

Use and connection charges

    (585.128       (585.128     (533.204       (533.204     (287.608       (287.608

PIS and COFINS credits

    105.717          105.717        321.428          321.428        137.640          137.640   

Personnel

      (47.480     (47.480       (34.558     (34.558       (19.060     (19.060

Materials

      (10.062     (10.062       (3.652     (3.652       (1.511     (1.511

Third-party services

      (29.558     (29.558       (17.065     (17.065       (24.996     (24.996

Depreciation and amortization

      (479.010     (479.010       (375.533     (375.533       (230.612     (230.612

Other

      (123.366     (123.366     108.805        (213.108     (104.303     716.184        (19.215     696.969   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (1.393.144     (689.476     (2.082.620     (3.042.482     (643.916     (3.686.398     (634.171     (295.394     (929.565
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (1.393.144     (689.476     (2.082.620     (3.042.482     (643.916     (3.686.398     (634.171     (295.394     (929.565
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* In 2015, discounting the effects of the Availability Factor (FID) and Generation Scaling Factor (GSF), the Subsidiary reached R$ 136,485 (2014 – R$ 15,041, negative), approximately, as positive result in the energy balance at CCEE, net of internal losses and basic network and received a refund of R$ 147,872 related to FID for the period from 2012 to 2014. However, costs of R$ 716,346 (2014 – R$ 1,044,096) incurred with GSF and of R$ 268,438 (2014 – R$ 723,467) with FID, especially, rendered the result at CCEE negative by R$ 700,427 (2014 – R$ 1,782,604).

 

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In November 2014, the sale of energy of the second advance block ended as the physical guarantee related to the 44 generating units had been reached. Accordingly, there is no longer share of results related to the 2 nd advance schedule with CCSA.

 

(b) General and administrative expenses

 

     Years ended December 31,  
     2015      2014      2013  
                   (unaudited)  

Staff and managers of the entity

     (28.164      (35.195      (26.592

Materials

     (4.515      (4.403      (1.549

Third-party services

     (72.592      (57.250      (45.454

Amortization

     (1.748      (1.747      (1.311

Rents and leases

     (6.701      (5.543      (4.364

Insurance

     (16.646      (19.551      (11.178

Taxes

     (823      (433      (1.160

Other

     (21.040      (14.728      (8.821
  

 

 

    

 

 

    

 

 

 
     (152.229      (138.850      (100.429
  

 

 

    

 

 

    

 

 

 

 

27 Finance income and costs

 

     2015      2014      2013  
                   (unaudited)  

Finance income

        

Income from financial investments

     59.742         25.472         9.770   

Adjustment to present value

     82.167         23.336         1.752   

Other finance income

     3.305         12.600         3.175   

Local currency monetary variation

     11.503         3.125         3.418   
  

 

 

    

 

 

    

 

 

 
     156.717         64.533         18.115   
  

 

 

    

 

 

    

 

 

 

Finance costs

        

Debt charges

     (731.362      (537.076      (243.426

Monetary variation (Use of public property)

     (49.275      (31.776      (27.627

Monetary variation of debentures

     (162.692      (80.265   

Local currency monetary variation

     (137.686      (40.115      (43.936

Other finance costs

     (42.643      (108.527      (8.907
  

 

 

    

 

 

    

 

 

 
     (1.123.658      (797.759      (323.896
  

 

 

    

 

 

    

 

 

 

Total

     (966.941      (733.226      (305.781
  

 

 

    

 

 

    

 

 

 

 

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28 Related parties – Consolidated

 

                                                       

Amount of

transactions at

years ended

December 31

 
   

 

 

 

    Assets    

 

    Liabilities     Property,
plant and
equipment
   

 

   

 

    Revenue    

 

   

 

    Expense  
   

Relationship

with the

company

  December 31,
2015
    December 31,
2014
    December 31,
2015
    December 31,
2014
    2015     2014     2015     2014     2013     2015     2014     2013  

Current

                      (unaudited         (unaudited

CEMIG Geração e Transmissão S.A

 

Parent company

stockholder*

    27.571        64.302        87.897        1.200            463.672        781.495        260.851        23.775        10.699        3.636   

CEMIG Distribuição S.A

  Common stockholder     15.639        12.296                142.826        85.747        28.645         

Construtora Norberto Odebrecht

  Common stockholder         59.274        124.068        318.264        465.499               

Andrade Gutierrez Engenharia S.A

  Common stockholder         24.396        86.579        90.722        376.680               

Odebrecht Serviços e Participações

  Common stockholder         24.396        86.579        90.722        376.680               

Odebrecht Energia do Brasil S.A

 

Parent company

stockholder*

          11.740                  168        906     

Andrade Gutierrez Participações S.A

 

Parent company

stockholder*

        398        363                  35        28     

Eletrobrás Furnas

 

Parent company

stockholder*

        9.578        4.174        2.762                108.662        44.040        49.217   
Non-current                          

Andrade Gutierrez Engenharia S.A

  Common stockholder     12.358        34.896                       

Construtora Norberto Odebrecht

  Common stockholder     15.204        74.711        18.992        15.914                   

Odebrecht
Comercializadora
de Energia. S

  Common stockholder         110.398                    15.065       

Odebrecht Serviços e Participações

  Common stockholder     17.232        27.596        48        48                   

Eletrobrás Furnas

 

Parent company

stockholder*

        150.543                    20.543       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      88.004        213.801        485.920        330.665        502.470        1.218.859        606.498        867.242        289.496        168.248        55.673        52.853   
                         

 

* Nota 21

CEMIG Geração e Transmissão S.A. - The balance recorded refers to two agreements for the purchase and sale of electric energy in the Free Contracting Environment entered into on March 19, 2009, in which the Subsidiary acts as the seller of energy to CEMIG of variable amounts during a big part of the motorization period of Santo Antônio HEP. One agreement is for 400 average megawatts and the other one for 250,4 average megawatts, effective between May 1, 2012 and December 31, 2027.

The liability balance is related to charges for the use of the network by the energy transmission service (Note 13) and the balance of the advance of energy volume occurred on February 6, 2015, when the Subsidiary received from Cemig Geração e Transmissão S.A. R$ 74,667 (Note 16).

CEMIG Distribuição S.A – The balance refers to the Agreement for Sale of Electric Energy in the Regulated Environment (CCEARs), related to the participation of CEMIG Distribuição S.A. in ANEEL Auction 05/2007, in which 70% of Santo Antônio HEP energy assured was sold. (Note 1). Cemig Distribuição purchased from the Subsidiary 117.8 average megawatts with supply term between December 31, 2012 and December 31, 2041.

 

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Andrade Gutierrez Engenharia S.A - The Subsidiary has an agreement for Implementation of the Santo Antônio HEP, as well as for installations of restricted interest transmission of the electricity powerhouse of Santo Antônio HEP with Santo Antônio Construction Consortium (CCSA), in which Andrade Gutierrez Engenharia S.A. takes part as the company responsible for the services of development of projects and civil works (Santo Antônio Civil Consortium).

Construtora Norberto Odebrecht S.A. and Odebrecht Serviços e Participações S.A - The Subsidiary has an agreement for Implementation of the Santo Antônio HEP, as well as for installations of restricted interest transmission of the electricity powerhouse of Santo Antônio HEP with Santo Antônio Construction Consortium (CCSA), in which Construtora Norberto Odebrecht S.A. (CNO) and Odebrecht Serviços e Participações S.A. take part as the companies responsible for the services of development of projects and civil works (Santo Antônio Civil Consortium) and, additionally, CNO, for the management and performance of electromechanical assembly services.

Eletrobrás Furnas - The Subsidiary has an Owner’s Engineering Services agreement with Furnas Centrais Elétricas, which is in force from December 17, 2008 to February 28, 2016.

Eletrobrás Furnas is also contracted to provide data analysis services of the acoustic investigation of the civil structures and foundations for the Santo Antônio HEP. This agreement is in force for 30 months starting January 6, 2014.

The Subsidiary has also entered into a purchase and sale of electric energy agreement in the Free Contracting Environment, whereby the Subsidiary acts as purchaser of 47,318 average megawatts of energy from Furnas Centrais Elétricas S.A., which is supplied between January 1, 2015 and December 31, 2027.

On February 5, 2015, the Subsidiary signed with Furnas Centrais Elétricas S.A. and agreement for the sale of energy and received on February 6, 2015 the amount of R$ 122,395, corresponding to R$ 130,000, net of withholding taxes, related to this sale and which is restated based on the IPCA. (Note 16)

The Subsidiary also has an agreement with Eletrobrás Furnas for transactions related to charges for the use of the network of energy transmission service. (Note 13).

Odebrecht Energia do Brasil S.A. –The Subsidiary recorded a balance related to finance costs incurred in order for the Santo Antônio HEP construction work to be carried out in accordance with the schedule established in the Concession Agreement.

Andrade Gutierrez Participações S.A. The recorded balance refers to finance costs incurred in order for the Santo Antônio HEP construction work to be carried out in accordance with the schedule established in the Concession Agreement. The balance is restated at TJLP plus 3.1%.

 

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Odebrecht Comercializadora de Energia S.A. – On February 5, 2015,the Subsidiary signed with Odebrecht Comercializadora de Energia S.A. an agreement for the sale of energy and received, on February 6, 2015, the amount of R$ 95,333 related to this sale, which is restated based on the IPCA. (Note 16)

 

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Management compensation - Consolidated

 

     Years ended December 31  
     2015      2014      2013  
                   (unaudited)  

Compensation

     4.679         3.385         2.921   

Profit sharing

        4.876         1.857   

Direct and fringe benefits

     389         137         226   
  

 

 

    

 

 

    

 

 

 

Total

     5.068         8.398         5.004   
  

 

 

    

 

 

    

 

 

 

 

29 Information by segment

The only business segment of the Company and of its subsidiary is the generation of electric energy through the exploitation of the Santo Antônio Hydroelectric Plant and its associated transmission system, located at the Madeira river, in the city of Porto Velho, State of Rondônia, as an “Independent Producer”, pursuant to the conditions established in the Concession Agreement. Accordingly, Company management, responsible for regularly reviewing the financial information in order to allocate the funds and analyze the Company’s performance, does not use segment information to carry out its analyses.

 

30 Subsequent events

On February 5, 2016, the Subsidiary received R$ 60,000 from the BNDES, R$ 30,000 of which related to the Direct Financing Agreement and R$ 30,000 related to the Repass Agreement. These funds are part of Subcredit “J”, payable in monthly installments between July 15, 2017 and March 15, 2034.

On January 10, 2016, the Federal Regional Court, 1 st Region, as answer to interlocutory appeal, accepted the request for preliminary injunction to suspend the recalculation of the Availability Factor (FID) amount of Santo Antônio HEP, of approximately R$ 130 million in debits which would be settled at the Electric Energy Trading Chamber (CCEE) for the accounting cycle of October and November 2015, to be settled in February 2016, because CCEE had not granted to SAE the opportunity to exercise its right to full defense and adversary proceedings in view of the re-accounting calculation.

The Company’s Extraordinary General Stockholders Meeting held on March 2, 2016, approved the Company’s capital increase with the purpose of increasing the capital of wholly-owned subsidiary Santo Antônio Energia S.A., through the issue of 573,529,412 new nominative common shares, without par value, for the face value of sixty-eight centavos (R$ 0.68) each, totaling R$ 390,000. These issued shares were fully paid-up on March 8, 2016.

 

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On March 8, 2016, the Subsidiary settled the Advanced Energy Purchase and Sale agreements with Furnas Centrais Elétricas S.A. and Odebrecht Comercializadora de Energia S.A. , as both companies opted for reducing in full the volume of energy, which supply by the Subsidiary was scheduled for the period from January 2017 to January 2020.

Brazilian Superior Court of Justice’s (“STJ”) decision published on April 11, 2016, has suspended the effects of the decisions that granted SAE an injunctive relief, in the ongoing Appeal ( Agravo de Instrumento ) N. 0036475-62.2015.4.01.0000/DF before the Federal Regional Court of Appeals of the 1 st Region, in connection with the assessment of the Availability Factor – FID. This decision does not affect the Financial Statements dated March 31, 2016, since the remaining payable balance related to FID is accrued on this base-date, even though the Company is endeavoring efforts to revert such decision.

In the third quarter 2016, the Subsidiary settled R$ 234,510 balance to pay the repricing of the GSF (R$ 469,020), the outstanding balance of R $ 234,510 will be paid in 3 equal and consecutive monthly installments from October 2016, with IGP-M restatement plus 1% per month (p.m.).

On September 5, 2016, the Market Arbitration Chamber ( “CAM”) released the judgment which partially upheld the claims made by SAAG Investimentos SA (“SAAG”) and Cemig Geração e Transmissão S.A. (“Cemig”) within the scope of arbitration claim against Madeira Energia SA (“MESA”).

On September 20, 2016, the Company required clarifications of the terms and conditions of the arbitration award and the CAM has not yet answered.

 

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